Summary

The three major domestic equity indexes edged higher on Tuesday, chalking up closing records, with financial stocks providing the greatest stimulus a day ahead of the Federal Reserve’s concluding statement from its two-day policy meeting.

Meanwhile, the Fed is expected to announce when it will begin paring down its bond portfolio. At the same time, a September interest rate increase is not expected. Nonetheless, the Street will watch closely for comments by Fed Chair Janet Yellen on inflation for clues whether the Fed will raise rates in December.

Six of the 11 major S&P sectors closed higher, with the financial sector’s 0.8 percent gain providing the largest improvement to the S&P 500 index. The sector has been higher in seven of the last eight sessions, chalking up a 6 percent increase during that time.

The telecom services index gained 2.3 percent because of a potential merger between merger between T-Mobile and Sprint. Verizon and AT&T were up more than 2 percent, making them the second- and third-largest individual stock increases within the S&P 500 index.

Shares of smaller wireless carrier T-Mobile rose 5.9 percent and Sprint rose 6.8 percent, following a report they were in active merger talks.

The healthcare index was one of the worst laggards, with declines in insurers such as United Health, which fell 1.8 percent due to the latest efforts in Washington to overhaul Obamacare.

Best Buy fell 8 percent after the company forecast fiscal 2021 adjusted earnings well below Street estimates. The stock was a major drag on the consumer discretionary index. Tesla fell 2.6 percent after Jefferies started coverage of the electric car maker’s stock with an “underperform” rating.

Approximately 5.8 billion shares changed hands on the major domestic equity exchanges, as compared to the 5.9 billion share daily average for the past 20 trading days, according to Thomson Reuters data.

The Day’s Economic Data

New home construction fell for a second straight month in August as a rebound in the construction of single-family houses was offset by persistent weakness in the volatile multifamily home segment.

The report from the Commerce Department on Tuesday also indicated that building permits were quickly moving to a seven-month high in August. However, permits for single-family homebuilding, which accounts for the largest share of the housing market, fell.

The mixed report suggested housing could remain a drag on economic growth in the third quarter. Homebuilding has been treading water for much of this year amid shortages of land and skilled labor as well as rising costs of building materials.

Housing starts slipped 0.8 percent to a seasonally adjusted annual rate of 1.18 million units, the Commerce Department said. Building permits surged 5.7 percent to a rate of 1.30 million units in August, the highest level since January.

The data suggested limited impact on permits from Hurricane Harvey, which lashed Texas in late August and caused unprecedented flooding in Houston. The Commerce Department said the response rate from areas affected by the storm “was not significantly lower.”

However, homebuilding could slump further in September in the aftermath of Harvey and Hurricane Irma, which struck Florida. According to Census Bureau data, the areas in Texas and Florida that were devastated by the storms accounted for about 13 percent of permits issued in the nation last year.

Though activity could pick up as the hurricane-ravaged communities rebuild, the dearth of labor could curb the pace of increase in homebuilding. A survey on Monday of this week indicated confidence among homebuilders fell in September amid concerns that the hurricanes could worsen the labor shortages and make building materials more expensive.

Investment in homebuilding contracted in the second quarter at its steepest pace in nearly seven years. As a result, housing subtracted 0.26 percentage point from second-quarter gross domestic product.

Homebuilding rose 1.4 percent in August on a year-on-year basis. Despite the recent weakness, housing continues to be supported by a labor market that is near full employment. In addition, mortgage rates remain close to historic lows.

Single-family homebuilding rose 1.6 percent to a rate of 851,000 units in August, while single-family permits fell 1.5 percent to a 800,000-unit pace. With permits lagging starts, single-family homebuilding could decline in the months ahead. Groundbreaking on single-family housing projects has slowed since vaulting to near a 9-1/2-year high in February.

August saw single-family starts rise in the South and West, but fell in the Midwest and Northeast. Starts for the volatile multi-family housing segment tumbled 6.5 percent to a rate of 329,000 units. Multi-family permits vaulted 19.6 percent to a 500,000-unit pace in August.

The mixed data is unlikely to change expectations that the Federal Reserve will announce on Wednesday a plan to start unwinding its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities. Fed officials were scheduled to start a two-day meeting later on Tuesday.

In a separate report on Tuesday, the Labor Department said import prices jumped 0.6 percent in August, the biggest gain since January, after dipping 0.1 percent in July.

In the 12 months through August, import prices surged 2.1 percent after rising 1.2 percent in July.

Last month, prices for imported petroleum were up 4.8 percent after slipping 0.4 percent in July. Import prices excluding petroleum rose 0.3 percent after declinng 0.1 percent the prior month. Import prices excluding petroleum increased 1.0 percent in the 12 months through August.

Import prices outside petroleum are rising as the dollar’s rally fades. The dollar has weakened 8.3 percent against the currencies of the United States’ main trading partners this year.

The report also showed export prices rose 0.6 percent in August after gaining 0.5 percent in July. They increased 2.3 percent year-on-year after rising 0.9 percent in August.

A third report from the Commerce Department showed the current account deficit, which measures the flow of goods, services and investments into and out of the country, increased to $123.1 billion in the second quarter from $113.5 billion in the first quarter.