Stock prices fell and Fed Chair Jerome Powell expressed caution with respect to further interest rate reductions on Tuesday.
The large-cap S&P 500 index fell 0.6% while the technology-focused Nasdaq Composite dipped nearly 1%. The Dow Jones Industrial Average, focused on blue-chip stocks, fell 0.2%.
Powell’s conservative outlook contributed to a retreat from record-high stock prices achieved earlier in the week. According to CME FedWatch, investors largely expect a second 2025 rate reduction at the Fed’s October meeting. Powell did not confirm that expectation. Instead, he noted concern over lingering inflation and a slowing labor market—in his words, “a challenging situation.”
Typically, the Fed uses interest rates and other tools to pursue its dual mandate of low unemployment and low inflation. Lower interest rates generally stimulate jobs but can encourage higher prices. The challenge for the Fed in 2025 is to restore a healthy labor market without prompting a resurgence of high inflation.
Stock futures for the S&P 500, Nasdaq 100 and Dow Jones are up slightly ahead of the market open on Wednesday. Contracts tied to the S&P 500 are up 0.2%, while Nasdaq 100 futures are up 0.3%. Dow Jones futures are up less than 0.1%.
Investing & Economic News To Watch Today
Today, these investing and economic events are on the calendar:
- Monthly new residential sales. The U.S. Census Bureau will report on new residential housing sales for August. In July, 652,000 new houses sold on a seasonally adjusted annual rate, down from 656,000 in June. Analysts expect another slight dip in August to 650,000. The report also includes sales price data. The July median sales price was $403,800, down from $407,200 in June.
- Cintas Corporation (CTAS) earnings. Business service and supply provider Cintas is expected to report $1.20 EPS for the August quarter. The company’s prior-year quarter EPS was $1.10.
- Uranium Energy (UEC) earnings. Analysts expect uranium miner UEC to report a loss per share of $0.04 for the July quarter, down from a $0.03 loss in the prior year.
- KB Home (KBH) earnings. Homebuilder KBH will try to beat a consensus EPS estimate of $1.51 for the August quarter. In the prior year, KBH reported EPS of $2.04.
Today’s Trading Lesson: Bonds
What role do bonds play in your portfolio? Bonds and bond funds are portfolio stabilizers. You may need a sizable position in bonds, or you may not. It depends on your age, risk tolerance, and investment goals.
Bonds provide stability because they often have fixed terms. No matter what happens with stock prices, a fixed bond’s coupon rate, principal repayment amount and repayment timeline remain unchanged. Note that if you invest in bond funds, you may see some variability in income and value—since the portfolio changes as bonds mature and trades are made.
The market value of bonds and bond funds can fluctuate, however. Interest rates and investor sentiment can prompt these changes. Bond prices rise when interest rates fall and fall when rates rise. Sentiment-driven changes can move in the opposite direction of stock prices, but this depends on circumstances.
Bonds’ fixed payment terms and inverse correlation to stock prices provide important diversification benefits—particularly if you are worried about losing money on stocks. Your bond positions can provide a buffer against stock-price volatility.
There is a trade-off, of course. Bonds don’t appreciate the way stocks do. So, while your bond position provides safety, it will also be a drag on your returns. This is why it’s important to get your allocation right.
No guideline applies to every situation, but here’s the usual advice: Keep your bond exposure low when you’re young—say 10%—and gradually increase it as you age. This approach allows you to focus on growing your wealth in your younger years, and then keeping it as you near retirement.