NEW YORK — US stocks closed lower for a second straight session on Wednesday, as investors booked profits with indexes near record levels after Federal Reserve Chair Jerome Powell flagged potentially stretched stock prices and ahead of a reading on inflation later in the week.
Investors are trying to gauge the trajectory of rate cuts from the central bank as it attempts to buttress an economy that has shown signs of a flagging labor market without stoking inflation.
With each of the three major indexes, along with the small-cap Russell 2000 closing at record highs simultaneously for the first time in years earlier this week, Powell said on Tuesday that asset prices appeared fairly highly valued. As his colleagues staked out arguments on both sides of the policy divide, the Fed chair emphasized the tightrope the central bank must walk in upcoming policy decisions.
To some analysts, the comments were reminiscent of those by former Fed Chair Alan Greenspan, who said in a 1996 speech that “irrational exuberance” had pushed up asset values.
Last week’s Fed rate cut helped lift equities in September, typically a weak month for stocks, with investors now banking on further easing to keep the rally alive.
“With the S&P pricing in 23-24 times expected earnings and expectations priced into that multiple of about 15 percent annualized earnings growth over the next five years, that sounds pretty rich to me,” said Ron Albahary, chief investment officer at LNW in Philadelphia.
“So not that we’re market timers at all, but the idea that people might be using this, using the Fed’s comments, Powell’s comments as just a reason to trim back a little bit makes sense to me.”
The Dow Jones Industrial Average fell 171.50 points, or 0.37 percent, to 46,121.28, the S&P 500 lost 18.94 points, or 0.28 percent, to 6,637.98 and the Nasdaq Composite lost 75.62 points, or 0.33 percent, to 22,497.86.
