Wall Street drifts around its record heights

Stocks have run to records on expectations that the Fed will announce the first of many cuts to rates on Wednesday afternoon in hopes of giving the economy a boost. The job market has slowed so much that traders believe Fed officials see it as the bigger danger for the economy now than the threat of higher inflation because of President Donald Trump’s tariffs.

The Fed has been holding off on cuts to interest rates because inflation has remained above its 2% target, and easier interest rates could give it more fuel.

A report on Tuesday said shoppers increased their spending at U.S. retailers by more last month than economists expected. A chunk of that, to be sure, could simply be due to shoppers having to pay higher prices for the same amount of stuff, but it could also indicate solid spending by U.S. households could continue to keep the economy out of a recession.

The data did little to change traders’ expectations for a cut to interest rates on Wednesday, followed by more through the end of the year and into 2026.

Such high expectations have sent stocks to records, but they can also create disappointment if unfulfilled. That’s why more attention will be on what Fed Chair Jerome Powell says in his press conference following the decision than on the decision itself. Fed officials will also release their latest projections for where they see interest rates and the economy heading in upcoming years, which could provide another potential flashpoint.

For now, global fund managers are tilting their portfolios toward stocks at the highest level in seven months. according to the latest survey by Bank of America. But at the same time, a record 58% of them are also saying that stocks look too expensive.

On Wall Street, Oracle climbed 3.5% on speculation that it could be part of a deal that would keep TikTok operating in the United States.

That helped offset a 15.4% drop for the Dave & Buster’s entertainment chain after it reported a weaker profit for the latest quarter than analysts expected.

New York Times Co. fell 1.6% after Trump filed a $15 billion defamation lawsuit against the newspaper and four of its journalists on Monday.

The lawsuit points to several articles and a book written by Times journalists and published in the lead up to the 2024 election as “part of a decades-long pattern by the New York Times of intentional and malicious defamation against President Trump.”

In stock markets abroad, indexes dipped modestly in Europe following a stronger showing in Asia.

Japan’s Nikkei 225 added 0.3% to finish at another record.

The rally comes despite political uncertainty after Japanese Prime Minister Shigeru Ishiba said he is stepping down. An election within the ruling Liberal Democratic Party to pick a new leader is expected Oct. 4.

In the bond market, the yield on the 10-year Treasury eased to 4.03% from 4.05% late Monday.

AP Business Writers Yuri Kageyama and Matt Ott contributed.