Benchmarks ended about 1% lower on Tuesday following a rise in the dollar and upbeat economic data. While an increase in the dollar compelled investors to reduce their exposure on riskier assets including equities, encouraging economic data raised anxiety of a rate hike sooner than later. Meanwhile, concerns about Greek’s debt crisis added to the bearish sentiment. The S&P 500 and the Dow registered their biggest one day percentage decline in the last three weeks on Tuesday.
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The Dow Jones Industrial Average (DJI) declined 1% to close at 18,041.54. The Standard & Poor’s 500 (S&P 500) also decreased 1% to 2,104.20. The tech-laden Nasdaq Composite Index closed at 5,032.75; declining 1.1%. The fear-gauge CBOE Volatility Index (VIX) soared 15.9% to settle at 14.06. A total of about 6.3 billion shares were traded on Tuesday, higher than this month’s average of 6.2 billion. Decliners outpaced advancing stocks on the NYSE. For 77% stocks that declined, 20% advanced. Markets were closed on Monday for the Memorial Day holiday.
Benchmarks started the holiday-shortened week in the red after the dollar gained strength, which compelled investors to take money out of equities and park them into safe-haven assets. The euro traded as low as $1.0877 versus the dollar on Tuesday, down from $1.0978 on Monday.
Last Friday’s comments from Fed Chair Janet Yellen on the possibility of a rate hike sometime this year boosted the dollar. Yellen had said the economy is well poised to grow even if soft economic data indicated the economy was not on a solid footing. Further, an increase in consumer price index on Friday also helped the dollar move north. Rise in consumer price index had raised concerns about rate hike sooner than expected.
Upbeat economic data on Tuesday also fueled expectations of an increase in interest rates in the near term. The Conference Board reported that Consumer Confidence Index increased to 95.4 in May from 94.3 in April. The reading exceeded the consensus estimate of the index increasing to 95.
Meanwhile, the U.S. Census Bureau and the Department of Housing and Urban Development jointly reported a 6.8% gain in sales of new single-family houses in April to 517,000, above the consensus estimate of sales increasing to 507,000. Additionally, the S&P/Case-Shiller’s 20-City composite index, the leading measure of U.S. home prices rose 5% year on year in March. Similarly, the 10-City composite index increased 4.7% year on year in March.
Separately, the U.S. Department of Commerce reported that new orders for manufactured durable goods declined 0.5% to $235.5 billion in April, more than the consensus estimate of a decrease by 0.2%. However, orders excluding the volatile transportation industry increased 0.5% last month. Moreover, core capital-goods orders, which don’t include the unpredictable defense and transportation sectors gained 1% in April following a revised 1.5% increase in March.
Expectations of a rise in interest rates eventually had a negative impact on the broader markets. Moreover, concerns on Greek debt crisis also dented investor sentiment. Greece is supposed to make a debt payment of 300 million euros to the International Monetary Fund on Jun 5. However, Greek officials warned that the country may miss its debt payments within the stipulated time frame.
Yesterday’s losses were broad based with all 10 sectors of the S&P 500 ending in the red. The Energy Select Sector SPDR (XLE) declined 1.6%, the highest among the S&P 500 sectors. Dow components Exxon Mobil Corporation (XOM – Analyst Report) and Chevron Corporation (CVX – Analyst Report) declined 1.4% and 1.5%, respectively. Among other key stocks from the energy sector, Kinder Morgan, Inc. (KMI – Analyst Report), Schlumberger Limited (SLB – Analyst Report) and ConocoPhillips (COP – Analyst Report) decreased 1.4%, 1.4% and 1.9%, respectively.
The Technology SPDR ETF (XLK) dropped 1.5% and was the second biggest loser among the S&P 500 sectors. Key technology stocks including Apple Inc. ( (AAPL – Analyst Report), Microsoft Corporation (MSFT – Analyst Report), Verizon Communications Inc. (VZ – Analyst Report), Google Inc (GOOGL – Analyst Report) and International Business Machines Corporation (IBM – Analyst Report) decreased 2.2%, 0.7%, 0.4%, 1.3% and 1.2%, respectively.
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