Financial shares led US stocks lower on Tuesday to end a three-day rally as investors awaited comments from Federal Reserve Chair Jerome Powell at the end of the week. The S&P 500 financial index dropped 1.4 per cent and the group weighed most heavily on the benchmark index among its major sectors, which all registered losses.

Prior to Tuesday’s session, US stocks had recovered most of their losses from a steep sell-off last Wednesday, which was triggered by a brief inversion of the yield curve between 2-year and 10-year Treasuries, widely considered a harbinger of a recession. Reports of stimulus efforts in China and Germany, along with the subsequent steepening of the yield curve, helped assuage recession fears.

The S&P 500 is now 4.1 per cent shy of its record closing high in July after having fallen as much as 6.2 per cent below that level. The Fed’s moves have drawn close attention as US economic growth has moderated and the US-China trade dispute has weighed on business confidence. On Tuesday, President Donald Trump said his administration was looking at cuts to payroll and capital gains taxes.

The Dow Jones Industrial Average fell 173.35 points, or 0.66 per cent, to 25,962.44, the S&P 500 lost 23.14 points, or 0.79 per cent, to 2,900.51 and the Nasdaq Composite dropped 54.25 points, or 0.68 per cent, to 7,948.56.

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