Stocks fell on Wall Street in afternoon trading Tuesday after discouraging economic data and cautionary remarks from the head of the Federal Reserve weighed on the market.
In an early afternoon speech, Fed Chairman Jerome Powell noted that the economic outlook has become cloudier since early May amid uncertainty over trade and global growth. Earlier, 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 Powell did not commit to a rate cut. His reassurances that the central bank is ready to "act as appropriate" to keep the economy growing failed to give the market a boost.
"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 & derivatives at Charles Schwab.
Separate comments from James Bullard, president of the Fed's St. Louis regional bank, didn't help. 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.
Prior statements from Fed officials have raised investors' expectations that the Fed will cut rates as early as next month in response to a slowing global economy. That expectation helped drive a strong rebound in stocks this month that erased losses from a steep sell-off in May.
Even so, traders remain concerned that corporate profits might suffer should the kind of economic slowdown that would prompt the Fed to cut rates take hold.
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.
Technology and internet stocks led the losses. Microsoft fell 3.1% and Facebook fell 1.9%. FedEx dropped 2.5% and weighed down industrial stocks.
Banks and other financial companies also declined as bond prices rose and yields fell. Lower bond yields hurt a bank's ability to charge higher interest on loans. Citigroup slid 1%.
Homebuilders fell broadly as investors weighed the latest economic data. Lennar led the pack, after the builder said a conference call with analysts that tariffs on Chinese goods were adding hundreds of dollars to the cost of its homes. The stock dropped 5.3%.
A surge in the share price of Botox maker Allergan held up health care stocks. The company is being bought by drug developer AbbVie.
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. Wall Street is watching for updates on the trade talks this week, hoping that the two sides can find a path to making a deal that will end their trade war.
KEEPING SCORE: The S&P 500 index was down 0.9% as of 3:46 p.m. Eastern time. The Dow Jones Industrial Average fell 160 points, or 0.6%, to 26,567. The Nasdaq composite, which is heavily weighted with technology stocks, dropped 1.4%.
The market is coming off its third straight weekly gain. The benchmark S&P 500 index is about 1.2% below the record high it set on Thursday.
Major stock indexes in Europe finished mostly lower.
WAITING FOR DIRECTION: Investors are essentially taking a step back after three weeks of gains while they wait for direction. 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.
Meanwhile, the Federal Reserve has been reassuring Wall Street that it is prepared to cut rates to help stabilize the U.S. economy if the trade war crimps growth. Investors have been dealing with a mixed bag of economic data over the last few months.
The Conference Board said Tuesday that consumer confidence dropped to its lowest level since September 2017. Meanwhile, home price gains slowed for the 13th straight month in April and new home sales slumped 7.8% in May.
"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."
REVENUE INJECTION: AbbVie fell 16.2% after the drug developer said it will pay around $63 billion for Allergan and add the blockbuster Botox to its products.
Allergan surged 26.1%.
Botox brought in $868.4 million in revenue for Allergan during the first quarter. AbbVie currently makes the blockbuster immune disorder treatment Humira, but revenue is expected to decline in the coming years as Humira loses patent protection and faces competition.
WRECKING BALL: In another example of investor nervousness over the U.S.-China trade dispute, homebuilder shares tanked after Lennar said tariffs on Chinese goods were adding an average of $500 to each new home.
Lennar shares gained ground early on a solid profit report but fell sharply after the tariff comment on earnings conference call.
Among other homebuilders, PulteGroup fell 2% and D.R. Horton dropped 3.7%.
AP Business Writer Damian J. Troise contributed to this report.