Tech Pullback Is Normal. The Fed Decides What Comes Next

The Nasdaq gave back a chunk of Monday's surge. The Invesco QQQ Trust (QQQ) fell 1.90%, a mild pullback after the index rallied 3.14% the session prior. Profit taking concentrated in the names that ran hardest. That is a normal pattern after a 3% day. The SPDR S&P 500 ETF (SPY) dropped 0.59%. The Dow Jones Industrial Average ETF (DIA) rose 0.59%. The Russell 2000 ETF (IWM) shed 0.88%. Money rotated out of tech and into value and defensive plays, giving the Dow a green close in a broadly red tape.

The moves reflect position-squaring more than conviction. The Fed's two-day meeting concludes Wednesday with a policy statement at 2 p.m. ET. No rate change is expected. The dot plot and Chair Powell's press conference will set the tone for the second half. Markets are pricing in two cuts this year. Any hint of a delay could pressure growth stocks again. A dovish lean would support the risk-on rally.

Elsewhere, news of a completed Iran deal pushed SPCX up 19% in heavy volume. The agreement reduces near-term geopolitical risk in the Strait. That outcome weighed on crude oil and lifted equities exposed to a lower risk premium. The oil drop helped the Dow outperform, given its heavier weighting in energy and industrial stocks.

The Alpha Scale scores the major ETFs at mixed to weak: SPY at 38, QQQ at 44, and DIA at 29. The scores suggest the broad market lacks momentum for a sustained push higher without a fresh catalyst. The Fed is that catalyst.

The tape is orderly. The QQQ pullback held above Monday's open. Volume was below average. Traders are waiting on the dot plot and Powell's tone. Wednesday's statement will decide whether the profit taking turns into a deeper correction or a consolidation before the next leg up.