US close: Stocks end lower ahead of Fed rate announcement

US stocks ended lower on Tuesday as weak oil prices hit energy shares, while investors looked ahead to the latest Federal Reserve rate announcement.

The Dow Jones Industrial Average closed down 0.2% to 20,837.37, the S&P 500 fell 0.3% to 2,365.45 and the Nasdaq ended 0.3% lower at 5,856.82.

Storm Stella descended on the East Coast, resulting in thousands of cancelled flights and hitting trading volumes as a state of emergency was declared in New York. Nevertheless, the Fed went ahead with the first day of its policy meeting.

In currency markets, the dollar was up 0.6% against the pound, underpinned by expectations of a rate hike. Earlier in the session, sterling fell to an eight-week low versus the greenback as investors worried about the prospect of a hard Brexit and news that Scotland was calling for another independence referendum.

With investors pricing in a 25 basis point rate hike by the Fed on Wednesday to between 0.75% and 1.00%, the main focus is likely to be on the ‘dot plot’ for future rate hike projections and any hawkish signs from the US central bank.

Markets have currently priced in a 60% chance of three rate hikes this year and this could increase if there are some hawkish comments from Fed chair Janet Yellen.

The Fed will release its statement and new economic forecast on Wednesday at 1800 GMT followed by a press conference by Chair Yellen.

On the corporate front, the snowstorm weighed on airline stocks, with American Airlines, United Airlines and Delta Air Lines all in the red.

Energy-related shares were also on the back foot as oil prices declined after OPEC reported a rise in global crude stocks and an output jump from its biggest member, Saudi Arabia.

Valeant Pharmaceuticals tanked after Bill Ackman’s Pershing Square Capital Management said it sold its 10% stake in the company.

Automation software group Synopsys retreated despite news that it will enter the S&P 500 later this week.

Macy’s Inc ended a touch higher on news that Canadian retailer Hudson’s Bay, which previously bid to buy Macy’s, is now in talks to buy Neiman Marcus.

On the data front, US producer prices grew 0.3% in February month-on-month, more than the consensus forecast of 0.1%. Energy costs rose 0.6% and food prices were 0.3% higher.

Producer prices were 2.2% higher than February 2015, below the 1.9% consensus and above the 1.6% reading in January.