U.S. equities slipped Tuesday as investors digested the fallout from stalled U.S.–China trade negotiations, eyed a critical Federal Reserve decision, and braced for heavyweight tech earnings later this week. The Dow Jones Industrial Average fell 204.57 points, or 0.46%, to 44,633. The Nasdaq Composite dropped 80.29 points, or 0.38%, to close at 21,098, while the S&P 500 shed 18.91 points, or 0.30%, to finish at 6,370.86.

Trade Talks End Without Breakthrough

Global sentiment was dented by the lack of progress in U.S.–China trade talks, which concluded in Stockholm with no formal agreement. While both sides labeled the discussions “constructive,” the absence of a deal left markets on edge ahead of the looming August 12 tariff snapback. Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer indicated that while technical issues—such as rare earth magnet supply chains—saw progress, broader political barriers remained.

“We made progress, but nothing is agreed until we speak with President Trump,” Bessent said, underscoring that the decision to extend the current 90-day tariff pause rests solely with the president.

President Donald Trump echoed that sentiment, saying he would be briefed Wednesday before making a final decision. “We’ll either approve it or not,” he said, suggesting he might meet Chinese President Xi Jinping later this year.

The unresolved status of the talks raises the risk that tariffs on Chinese goods will revert to their April levels, potentially disrupting consumer goods and industrial supply chains. “Boomeranging” tariffs, as Bessent described them, could reinstate significant friction in trade just as inflationary pressures mount.

Fed Decision Looms

Investors also looked ahead to the Federal Reserve’s policy announcement set for Wednesday at 2 p.m. ET. The Fed is widely expected to keep interest rates unchanged at 4.25%–4.50%, but focus has shifted to Chair Jerome Powell’s guidance on a possible rate cut in September.

Markets are currently pricing in a 64% probability of a cut, though Powell is expected to maintain a data-dependent stance. Rising inflation risks—fueled in part by potential tariff hikes—and renewed political heat from President Trump have complicated the Fed's policy calculus. The June CPI showed monthly gains of 0.4% to 0.5%, further challenging Powell’s attempt to balance price stability with growth and political neutrality.

Treasurys Rally as Yields Slip

Treasury yields pulled back Tuesday, reflecting investor caution. The yield on the benchmark 10-year Treasury fell to 4.324%, down 9.6 basis points on the day, while the 2-year yield dropped 4.7 basis points to 3.875%. The narrowing yield gap signals tempered expectations for aggressive near-term monetary tightening and heightened concerns about economic uncertainty.

Commodities Climb

In commodities, gold and crude oil prices surged as investors sought haven assets and braced for potential supply chain dislocations.

Gold futures for August delivery rose $13.50, or 0.40%, to $3,380.30, buoyed by both geopolitical uncertainty and a weakening dollar.

Crude oil saw a more dramatic move, with September futures jumping $2.61, or 3.91%, to settle at $69.32. The rally reflected renewed hopes for global demand stability and a potential supply crunch should tariffs disrupt critical manufacturing hubs.

Earnings on Deck

Investors also positioned ahead of blockbuster tech earnings due Wednesday. Microsoft (MSFT) and Meta Platforms (META) are set to report after the bell, with both facing intense scrutiny over their aggressive artificial intelligence investments.

Microsoft is expected to post Q4 revenue of $73.86 billion, a 14% annual gain, with Azure cloud growth of 34–35% in focus. Capital expenditure guidance of $80 billion remains under the microscope amid comparisons to Alphabet and Meta’s upward revisions.

Meta, meanwhile, is projected to report revenue of approximately $44.8 billion and EPS of $5.83. CEO Mark Zuckerberg’s sweeping AI hiring spree and expanded CapEx budget of up to $72 billion have raised questions about margins and long-term returns. Advertising metrics and performance of platforms like Threads and WhatsApp will also be key focal points for analysts.

Railroad Megamerger Faces Scrutiny

In the industrial space, Union Pacific (UNP) and Norfolk Southern (NSC) unveiled an $85 billion merger plan to form the first coast-to-coast U.S. freight rail operator. While the deal promises $2.75 billion in annual synergies, investor skepticism lingered. NSC shares traded below the proposed $320 offer price, reflecting doubts about regulatory approval, especially given the Surface Transportation Board’s strict merger history.