Markets drop after Fed’s Powell sounds down note

Technology and Internet companies led a broad slide for U.S. stocks Tuesday after discouraging economic data and cautionary remarks from the head of the Federal Reserve weighed on the market.

The sell-off marked the third straight loss for the market and the biggest drop this month for the Dow Jones Industrial Average and the S&P 500 index, which hit an all-time high only last week.

The S&P 500 index fell 27.97 points, or 1%, to 2,917.38. The Dow dropped 179.32 points, or 0.7%, to 26,548.22. The Nasdaq composite, which is heavily weighted with technology stocks, slid 120.98 points, or 1.5%, to 7,884.72.

The Russell 2000 index of smaller company stocks gave up 9.05 points, or 0.6%, to 1,521.04.

The market is coming off its third straight weekly gain. The benchmark S&P 500 index is about 1.3% below the record high it set on Thursday.

In an early afternoon speech Tuesday, Fed Chairman Jerome Powell noted that the economic outlook has become cloudier since early May amid uncertainty over trade and global growth. Earlier Tuesday, reports showed a decline in consumer confidence and more weakness in the housing market.

Powell said the Fed is reassessing its interest rate policy, though he did not commit to a rate cut. Separate comments from James Bullard, president of the Fed’s St. Louis regional bank, may have put a damper on the market’s expectations for big rate cut.

In an interview with Bloomberg Television, Bullard said a half-point rate cut — which many investors have been expecting — would be “overdone,” adding that a quarter-point cut would suffice to shield the economy from a slowdown.

“The risk is to the downside if they don’t cut [rates] when the markets are fully expecting it,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab.

Prior statements from Fed officials have raised investors’ expectations that the central bank will cut rates as early as next month in response to a slowing global economy. That expectation sparked a rally in the first three weeks of June that wiped out the market’s losses from a steep sell-off in May.

But traders have grown cautious this week. Trade policy remains the biggest source of uncertainty looming over the market. Investors are worried about the trade dispute between the U.S. and China and its potential impact on global economic growth and corporate profits.

Presidents Donald Trump and Xi Jinping will meet this week at the Group of 20 meeting of major economies in Japan. The world’s two largest economies spent much of the current quarter escalating their trade war and giving Wall Street jitters over prospects for economic growth.

“You could almost tie every piece of weakening economic data, whether it’s domestic or global, back either directly or indirectly to this trade issue,” Frederick said. “What the whole global economy needs is some certainty on trade, but what we’re doing is we’re trying to treat it by cutting interest rates.”

On Tuesday, the Conference Board said that U.S. consumer confidence dropped to its lowest level in more than 18 months. Two other reports showed home price gains slowed for the 13th straight month in April and sales of new U.S. homes slumped in May.

Home builders fell broadly as investors weighed the latest housing data. Lennar led the pack, after the builder said a conference call with analysts that tariffs on Chinese goods were adding an average of $500 to the cost of each new home. The stock dropped 6.2%.

Technology and Internet stocks led the losses Tuesday. Microsoft fell 3.2% and Facebook fell 2%. FedEx dropped 3.1% and weighed down industrial stocks.