The major domestic equity indexes closed out the trading day in negative territory for a third day in a row on Wednesday, with the S&P 500 index posting its largest one-day decline in a month. Leading the downturn were healthcare and energy shares.

With corporate earnings season ending, the Street is searching for for next catalysts to drive the financial markets, including a potential trade agreement between the United States and China and economic data, including Friday’s employment report.

Optimism over a trade deal and over the Federal Reserve becoming less aggressive on raising interest rates have helped fuel a 10.6 percent upsurge for the S&P 500 this year, although the rally has stalled in recent days. 

The small-cap Russell 2000 fell 2.0 percent, its largest one-day percentage decline of the year. The closely followed Dow Jones Transport Average fell 0.5 percent, its ninth consecutive session of declines, which is its longest losing streak since February 2009.

The 2,800 level on the S&P 500 has provided technical resistance to the benchmark index moving higher, although the index has breached its 200-day moving average, another key level.

“We have overcome that major hurdle of resistance, but 2,800 has proven tougher,” Joy said.

The S&P 500 healthcare sector lost 1.5 percent, with Pfizer Inc down 2.4 percent and Amgen off 3.0 percent.

Tuesday’s surprise resignation of Food and Drug Administration commissioner Scott Gottlieb raised uncertainty about biotech and pharmaceutical stocks in a sector that already has been shaken by the potential for drug-pricing and other healthcare legislation.

The energy sector fell 1.3 percent as domestic crude prices declined and Exxon Mobil shares fell 1.1 percent after the oil company said it plans to increase spending for several years to restore flagging oil and gas production.

In other corporate news, General Electric fell 7.9 percent, extending losses from a day earlier when the conglomerate’s chief executive warned of negative industrial cash flow this year.

In its regular “Beige Book” report, the Fed said slowing global growth and the 35-day partial federal government shutdown weighed on the economy in the first weeks of 2019, but it continued growing amid still-tight labor markets.

Approximately 7.3 billion shares changed hands on the major domestic equity exchanges, a number that was in line with the daily average over the last 20 sessions.

Certain Factors Still Weigh on Economy

In the Beige Book report by the Federal Reserve, The Fed made the point on Wednesday that even with slowing global growth and the 35-day partial federal government shutdown during the first weeks of 2019, the economy continued to grow amid still-tight labor markets.

“Economic activity continued to expand in late January and February,” even as concerns took root at the Fed regarding a possible slowdown, the Fed said in its regular “Beige Book” compendium of anecdotes compiled from industry and business contacts around the country.

The pace of growth was “slight-to-moderate” in 10 of the Fed’s 12 districts, with those in Philadelphia and St. Louis reporting “flat economic conditions.”

Still, the overall tenor of the Beige Book may relieve some of the concerns about growth in the real economy that prompted the Fed to pause its cycle of interest rate hikes in January after a sharp correction in financial markets and other risks, began increasing late last year.

Tighter credit conditions were cited as damping consumer spending; concerns about tariffs continued to weigh on the minds of executives and crimp profits as input costs rose more than could be passed along to consumers; and the government shutdown “led to slower economic activity in some sectors” including manufacturing, retail and real estate, across roughly half of the Fed’s districts.

Job and wage gains, however, continued, with the St. Louis district reporting that opportunities for work were so plentiful that college enrollment was dropping “as potential students were increasingly choosing to enter the labor market.”

In the Philadelphia district, business contacts “continued to note that the labor market was very tight … Firms are responding by raising wages, increasing job flexibility, training new hires who have fewer skills than desired, and making greater use of trial periods of temp agency placements.”

The Fed’s policy-setting committee is scheduled to meet in two weeks to make its latest interest rate decision, and is widely expected to leave borrowing costs unchanged, consistent with the “patient” strategy it outlined in January.

Inflation will be a key element of any decision about when or if to raise rates again, and the Beige Book reported that prices increased at only a “modest-to-moderate pace” in the period.

However, it also hinted at price pressures building in parts of the economy. The Fed’s Cleveland district, for example, outlined an economy where price hikes were being passed among firms, with some feeling they were able to pass them along to consumers, and others not.

“Construction companies passed on strong input cost increases. By contrast, manufacturers’ prices remained more stable … Transportation companies raised prices, but retailers did not raise prices to cover transportation cost increases,” the Fed reported.

Although much about our domestic economic outlook remained positive, businesses continued to cite concerns over trade and tariffs and the health of the global economy in general.

Manufacturers in particular “conveyed concerns about weakening global demand, higher costs due to tariffs, and ongoing trade policy uncertainty.” In some areas, including the Philadelphia district, that caused regional growth to grind to a halt.

The economy in that area was reported slowing from “modest growth in the prior period to little or no change in the current period,” the Fed said.

While the impact of the government shutdown is expected to be small on a nationwide basis, it was noticeable in some parts of the country. The Richmond Fed, whose area includes Washington, said “a sharp decline in tourism was reported by several firms in and around the District of Columbia.”