Banking stocks, which tend to benefit from higher interest rates, dropped 1.4 per cent. The broader financial sector fell one per cent.
Still, hopes that the Fed will act to counter a slowing global economy due to the escalating trade war with China have spurred a rally in stocks this month. The S&P 500 index is up 4.6 per cent so far in June.
Fed policymakers will meet on June 18-19. Markets have priced in at least two rate cuts by the end of 2019. Fed fund futures imply around an 80 per cent chance of an easing in rates as soon as July.
Investors are reducing exposure to stocks after the recent rally, and as they brace for the Fed meeting.
“People don’t want to be too far over their skis going into next week,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
The Dow Jones Industrial Average fell 43.68 points, or 0.17 per cent, to 26,004.83, the S&P 500 lost 5.88 points, or 0.2 per cent, to 2879.84 and the Nasdaq Composite dropped 29.85 points, or 0.38 per cent, to 7792.72.
S&P 500 utilities, which are positively affected by falling rates, was the day’s best-performing sector, rising 1.3 per cent.
Lingering worries on the trade front weighed on sentiment, a day after US President Donald Trump said he was holding up a deal with China and had no interest in moving ahead unless Beijing agrees to four or five major points.
Less than three weeks before proposed talks between the US and Chinese leaders, sources say there has been little preparation.
Trump said a deal could be reached, but again threatened to increase tariffs on Chinese goods unless that happens.
Semiconductor stocks, which get sizeable revenue