Investors wary ahead of Fed

Stocks slip as investors gear up for expected rate cut; consumer confidence falls to lowest level in 2 years; Merrill CEO resigns; oil prices dip after hitting records.

By Alexandra Twin, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Stocks dipped Tuesday afternoon, as a weak consumer confidence report and news that Merrill Lynch's CEO has resigned gave investors a reason to retreat ahead of an expected rate cut from the Federal Reserve Wednesday.

The Dow Jones industrial average (Charts) lost 0.4 percent over 2-1/2 hours into the session. The S&P 500 (Charts) index lost 0.5 percent. The Nasdaq composite (Charts) lost less than 0.2 percent after having ended the previous session at a new 2007 high, its highest close in nearly seven years.

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Stocks gained Monday, as Fed hopes distracted investors from record oil prices above $93 a barrel and another record low for the dollar versus the euro.

But the advance didn't extend into Tuesday morning, even as oil prices dropped.

"The market was very strong last week and yesterday and so today you're just seeing a little profit taking ahead of the Fed announcement," said Georges Yared, chief investment strategist at Yared Investment Research.

"The market is waiting for the next shot in the arm and the Fed is likely to provide it tomorrow," he said.

Federal Reserve officials meeting Tuesday and Wednesday are expected to cut the fed funds rate, a key short-term interest rate, by a quarter-percentage point to 4.50 percent.

The Fed cut rates last month by a half-percentage point in an attempt to both loosen up the credit market and to stop the housing market collapse from sending the broader economy into a recession.

It was the first rate cut in four years and at the time, the bankers indicated that inflation fears had receded.

However, with oil prices up as high as $93 a barrel and gold prices near 26-year highs, concerns remain about pricing pressure and the strength of the consumer. Investors will be looking for the statement accompanying Wednesday's decision to address these issues, as well as other recent signs that economic growth continues to slow.

In corporate news, Merrill Lynch (Charts, Fortune 500) said Chairman and CEO Stanley O'Neal is retiring from the firm, as expected, one week after the brokerage said it lost $8 billion in the third quarter due to bad mortgage bets.

Merrill shares fell 2 percent and dragged on other financial stocks.

The Conference Board's consumer confidence index released Tuesday morning fell in October to its lowest level in two years. Economists thought the index would hold steady.

In earnings news, Procter & Gamble (Charts, Fortune 500) reported higher quarterly earnings that edged expectations, but issued a current-quarter outlook that disappointed some investors, weighing on shares. (Full story).

ON Semiconductor (Charts) shares slumped 19 percent after the company reported lower third-quarter earnings that missed estimates and gave a fourth-quarter revenue forecast that is below analysts' estimates.

Around 61 percent of the S&P 500 September quarter earnings have been reported, with growth on track to have fallen 0.9 percent from a year ago, according to the latest Thomson Financial figures. That makes the quarter the weakest in at least five years.

U.S. light crude oil for December delivery fell $1.53 to $92 a barrel on the New York Mercantile Exchange after settling at a record $93.53 a barrel Monday. Crude reached a record $93.80 during the session Monday.

COMEX gold for December delivery fell $7.10 to $785.50 an ounce.

Treasury prices inched lower, lifting the yield on the benchmark 10-year note to 4.39 percent from 4.38 percent late Monday. Bond prices and yields move in opposite directions.

In currency trading, the dollar was little changed versus the euro after falling to another all-time low against the European currency Monday. The dollar rose against the yen. Top of page

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.