Benchmarks ended slightly lower after a slump in utility stocks offset rise in energy shares. While high-dividend utility stocks took a beating due to rise in bond yields, energy shares gained as weaker dollar pushed oil prices higher. The euro strengthened against the dollar on upbeat Eurozone inflation data. Moreover, encouraging news on Greece’s debt crisis boosted the single currency.
For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article
The Dow Jones Industrial Average (DJI) declined 0.2% to close at 18,011.94. The Standard & Poor’s 500 (S&P 500) decreased 0.1% to 2,109.60. The tech-laden Nasdaq Composite Index closed at 5,076.52; declining 0.1%. The fear-gauge CBOE Volatility Index (VIX) went up 1.9% to settle at 14.24. A total of about 5.5 billion shares were traded on Tuesday, lower than the last five sessions’ average of 6.3 billion. Advancers outpaced declining stocks on the NYSE. For 52% stocks that advanced, 44% declined.
The yield on the 10-year U.S. Treasury note climbed to 2.266% on Tuesday, the highest level this year. Treasury prices dropped in the U.S. markets after a report showed Eurozone consumer prices increased for the first time in six months in May. Core inflation rose to 0.9% in May from April’s record low figure of 0.6%. Eurozone inflation data also boosted European yields. In Germany, the 10-year bund yield went up 0.707%, resulting in heavy selling in German debt market.
Rise in bond yields had a negative impact on high-dividend sectors including utilities and real estate investment trusts on Tuesday. While the Utilities Select Sector SPDR (XLU) declined 1.3%, the highest among the S&P 500 sectors, the MSCI US REIT index fell 0.9%.
Key utilities stocks including NextEra Energy Inc (NEE – Analyst Report), Exelon Corporation (EXC – Analyst Report), Southern Company (SO – Analyst Report), PG&E Corporation (PCG – Analyst Report) and Duke Energy Corporation (DUK – Analyst Report) dropped 1.3%, 0.8%, 0.9%, 1.4% and 1.3%, respectively.
Meanwhile, investors kept an eye on Greece’s debt crisis. According to sources, these key leaders have reached a consensus on the ‘terms of a proposed deal’ that should be offered to Greece. Greece has also submitted a proposal to get more funds from its lenders. IMF Managing Director Christine Lagarde had said a lot needs to be done between Greece and its lenders before agreeing on a cash-for-reforms deal. Greece needs to pay 300 million euros to the IMF on Jun 5.
Positive news emanating from Greece and upbeat Eurozone consumer-price inflation data helped the euro jump against the dollar. The euro surged to $1.1164 on Tuesday from $1.0932 on Monday. A weaker dollar boosted oil prices, which in turn helped energy and material stocks move north.
The Energy Select Sector SPDR (XLE) gained 0.7%, the highest among the S&P 500 sectors. Key energy stocks including Schlumberger Limited (SLB – Analyst Report) and ConocoPhillips (COP – Analyst Report) increased 0.9% and 0.7%, respectively. The Materials Select Sector SPDR ETF (XLB) advanced 0.3% and was the second biggest gainer among the S&P 500 sectors. Key stocks from the sector including The Dow Chemical Company (DOW – Analyst Report) and LyondellBasell Industries N.V. (LYB – Analyst Report) increased 0.8% and 0.9%, respectively. Overall, 6 out of 10 sectors of the S&P 500 ended in the green.
Investors also remained focused on economic data for clues on when the Federal Reserve will raise interest rates. According to the U.S. Department of Commerce, new orders for manufactured goods decreased 0.4% in April. This reading follows an increase of 2.2% in March. The consensus estimated factory orders to remain unchanged in April. Separately, unfilled orders were down 0.1%, shipments remained unchanged and inventories increased 0.1%.
Separately, U.S. auto sales report showed domestic-made vehicle sales climbed to an annualized rate of 14.2 million in May, more than the consensus expectation of an increase to 13.2 million. Sales on a seasonally adjusted annualized rate (“SAAR”) basis surged to 17.78 million in May from 16.52 million in April. This is the highest SAAR since Jul 2005. Additionally, U.S. light-vehicle sales increased 1.6% year over year to 1.63 million units in May 2015. This is a record high for May sales.
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