Stocks slipped Tuesday as investors grappled with tariff tensions, profit-taking, and looming uncertainty ahead of Wednesday's Federal Reserve policy decision. All three major U.S. equity benchmarks closed lower, breaking a multi-week rally that began off the April 7 lows.

The Dow Jones Industrial Average fell 390 points, or 0.95%, closing at 40,829. The S&P 500 declined 0.77% to 5,606, while the Nasdaq Composite dropped 0.87% to finish at 17,690. While early-session weakness was attributed to tariff headlines, the broader context was more about digestion of recent gains and a wait-and-see mode ahead of the Fed.

Sector Performance and ETF Moves

Biotech stocks led the downside, with xbi tumbling over 6%, driven by fears of Medicaid coverage cuts and potential new pharmaceutical import tariffs from the Trump administration. Healthcare broadly struggled, with XLV off 2.7%. High-beta growth names also came under pressure, as Cathie Wood's ARKK fell 3.4%.

Homebuilders (ITB -2.0%) were weaker despite a modest decline in Treasury yields, reflecting concerns about supply chain inflation and margin compression in a rising tariff environment. Meanwhile, defensive plays took the lead: Gold (GLD +2.64%) and Utilities (XLU +1.18%) were among the best performers, signaling a classic risk-off rotation.

Energy reversed Monday's losses as wti crude rallied over 3.4% to $59.09 a barrel. The rebound was supported by Diamondback Energy's warning of curtailed production and a downgraded 2025 oil output forecast from the EIA. ETFs such as XLE (+0.44%), XOP (+0.69%), and OIH (+0.74%) were all firmer.

Semiconductors and large-cap tech held up relatively well. The SMH dipped just 0.34%, while XLK slipped 0.40%, both outperforming the broader market. nvidia CEO Jensen Huang's comments on CNBC highlighted AI as essential social infrastructure and underscored long-term optimism for the sector.

US-Canada Trade Summit and Geopolitical News

One of the day's top stories was the meeting between President Trump and Canadian Prime Minister Mark Carney. The tone was constructive, though Trump reiterated his push for tariffs on Canadian autos and steel. Carney emphasized cooperation and said no tariff decisions were made but acknowledged that more negotiations were needed. Canadian officials noted that talks covered trade, security, and Arctic strategy.

Tariff noise extended to Europe and Asia. EU Trade Commissioner Maros Sefcovic warned of retaliatory measures if the U.S. imposes broader duties on European exports. Meanwhile, reports from Japan suggested the U.S. denied Tokyo's request for tariff exemptions, although discussions remain fluid.

Bonds, Dollar, Gold, and Oil

Treasuries rallied modestly, aided by strong demand at Tuesday's $42 billion 10-year note auction. The auction stopped through with a high yield of 4.342%, a bid-to-cover of 2.60, and indirect takedown of 71.2%, all above recent averages. The 10-year yield dipped to 4.31%, while the 2-year yield declined to 3.79%.

Gold surged 3% to a record $3,411.40/oz, boosted by safe-haven buying and pent-up demand out of China after the holiday break. Silver (SLV) also gained 2.46%. The U.S. dollar was marginally weaker, pressured by lower yields and softer sentiment indicators.

Crude oil rebounded sharply, with Brent settling at $62.15 (+3.2%) and WTI at $59.09 (+3.4%), driven by revised production forecasts and bullish comments from shale producers. The EIA now expects 2025 U.S. production of 13.4 million barrels/day, down from its previous 13.5 million estimate.

Economic Data and Market Indicators

The Atlanta Fed’s GDPNow model raised its Q2 GDP growth estimate to 2.2% from 1.1%, reflecting continued resilience in hard data. Meanwhile, sentiment remained soft, with investors citing tariff-related uncertainty as a major headwind.

On the international front, Germany’s Friedrich Merz was confirmed as chancellor after a second vote, but the process highlighted ongoing political fragmentation in Europe. In Asia, Taiwan is set to release CPI and PPI data Wednesday morning, with inflation readings likely to influence regional monetary policy expectations.

Looking Ahead: Fed Decision and Earnings

All eyes turn to Wednesday's FOMC decision. The Fed is widely expected to keep rates steady at 4.25%-4.50%. Market attention will focus squarely on Chair Jerome Powell’s press conference at 2:30 p.m. ET, with traders looking for any shift toward a more dovish tone amid softening sentiment amid still-sturdy labor and inflation data.

Investors will also monitor the latest round of earnings. After the bell Tuesday, results from AMD, Arista Networks, and Electronic Arts are due. Wednesday morning brings reports from names like disney, Uber, CDW, and Flex, alongside key macro data including German factory orders and Eurozone retail sales.

Conclusion

Tuesday’s action reflected a market caught between strong recent gains, tariff risk headlines, and anticipation of a potentially pivotal Fed meeting. Sector dispersion highlighted investor rotation into safety, while riskier pockets like biotech and innovation took the brunt of the selling. The stage is now set for a high-stakes Wednesday, where both the Fed's tone and corporate earnings could dictate the next leg in equity market direction.