With the Fed's policy statement looming, the S&P 500 drops

The Fed was widely expected to raise rates by 50 basis points at the end of its meeting on Wednesday, according to analyst forecasts. The S&P 500 finished down on Tuesday, unable to recover from a severe sell-off in the previous session, ahead of a major Federal Reserve policy statement that will disclose how aggressive the central bank's policy path will be.

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The Fed was widely expected to raise rates by 50 basis points at the end of its meeting on Wednesday, according to analyst forecasts.

After Friday's higher-than-expected consumer price index (CPI) figures for May, however, expectations for a 75 basis point raise have grown.

Furthermore, a story published by the Wall Street Journal on Monday, as well as estimates from numerous institutions, including JP Morgan and Goldman Sachs, indicating a 75 basis point raise, have supported that opinion.

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"Today's PPI numbers put to rest any doubts about the extent of rising prices and inflation - the big question is going to be how aggressive the Fed is going to be literally this week - not so much projecting out, but how much they are going to take the bull by the horns this week and really try to ease recessionary fears."

The Dow Jones Industrial Average (.DJI) dropped 151.91 points, or 0.5 percent, to 30,364.83, the S&P 500 (.SPX) dropped 14.15 points, or 0.38 percent, to 3,735.48, and the Nasdaq Composite Index (.IXIC) dropped 14.15 points, or 0.38 percent.

The S&P 500 index has now dropped for five days in a row, its longest losing streak since early January. The index is already down more than 20% from its most recent record high, confirming that a bear market began on January 3, according to a widely accepted definition. According to CME's FedWatch Tool, traders are now pricing in a more than 90% possibility of a 75 basis point raise, up from 3.9 percent a week ago. The producer price index (PPI), while marginally less than expected on a year-over-year basis for May, remained high as gasoline prices rose, according to data released on Tuesday.

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"Ultimately, even though we're seeing more red and negative pressure here, we believe today is more of a wait-and-see day," said the analyst.

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