Stocks Pull Back Sharply Amid Renewed Rate Hike Worries - U.S. Commentary

(RTTNews) - Stocks moved sharply lower over the course of the trading day on Tuesday, offsetting the rally that was seen in the previous session. With the pullback on the day, the Dow fell to its lowest closing level in well over a month.

The major averages climbed off their worst levels going into the close but remained firmly in the red. The Dow slumped 180.73 points or 1 percent to 17,529.98, the Nasdaq plunged 59.73 points or 1.3 percent to 4,715.73 and the S&P 500 tumbled 19.45 points or 0.9 percent to 2,047.21.

The sell-off on Wall Street came as traders cashed in on yesterday's gains, as the latest batch of U.S. economic data raised concern about the outlook for interest rates.

Before the start of trading, the Labor Department released a report showing a slightly bigger than expected increase in consumer prices in the month of April.

The report said consumer prices climbed by 0.4 percent in April after inching up by 0.1 percent in March. Economists had expected prices to rise by 0.3 percent.

Excluding a jump in energy prices as well as an uptick in food prices, core consumer prices edged up by 0.2 percent in April after creeping up by 0.1 percent in March. The modest increase matched economist estimates.

On an annual basis, the pace of consumer price growth accelerated to 1.1 percent in April from 0.9 percent in March, but the pace of core price growth slowed to 2.1 percent from 2.2 percent.

With the increase in the headline rate and the core rate remaining above 2 percent, ING Chief International Economist Rob Carnell said the excuses for not raising interest rates at the Federal Reserve's June meeting are looking more stretched.

"Comments from Fed speakers over recent months have reiterated that June is a 'live' month, and that two rate hikes look a reasonable prospect for 2016," Carnell said.

"But financial markets have been pricing in a far flatter curve for the Fed over the coming year," he added. "Today's inflation data is a clarion call for a market rethink on the Fed."

Upbeat reports on residential construction and industrial production also led to renewed speculation that the Fed could raise interest rates next month.

Separate reports from the Commerce Department and the Federal Reserve showed that housing starts and industrial production both rebounded by more than expected in April.

Speaking at an event hosted by Politico, Atlanta Fed President Dennis Lockhart acknowledged that the Fed may raise rates next month but noted the central bank will take in a lot more data before making its decision.

Sector News

Reflecting the concerns about the outlook for monetary policy, rate-sensitive commercial real estate and utilities stocks showed significant moves to the downside on the day.

The Morgan Stanley REIT Index tumbled by 1.9 percent, while the Dow Jones Utilities Average slumped by 1.8 percent.

Considerable weakness was also visible among software stocks, as reflected by the 1.8 percent loss posted by the Dow Jones Software Index. Microsoft (MSFT) helped lead the way lower, falling by 1.9 percent.

Tobacco, retail, networking, and consumer stocks also came under pressure, moving lower along with most of the other major sectors.

Meanwhile, gold stocks bucked the downtrend, resulting in a 1.2 percent jump by the NYSE Arca Gold Bugs Index. The strength in the sector came as gold for June delivery rose $2.70 to $1,276.90 an ounce.

A continued increase by the price of crude oil also contributed to some strength among energy stocks, with crude for June delivery climbing $0.59 to a seven-month closing high of $48.31 a barrel.

Other Markets

In overseas trading, most stock markets across the Asia-Pacific region moved higher on Tuesday. Japan's Nikkei 225 Index shot up by 1.1 percent, and Hong Kong's Hang Seng Index spiked by 1.2 percent. However, China's Shanghai Composite Index bucked the uptrend and dipped by 0.3 percent.

Meanwhile, the major European markets turned in another mixed performance on the day. While the U.K.'s FTSE 100 Index rose by 0.3 percent, the French CAC 40 Index fell by 0.3 percent and the German DAX Index slid by 0.6 percent.

In the bond market, treasuries showed a lack of direction over the course of the session before closing roughly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by less than a basis point to 1.759 percent.

Looking Ahead

Trading on Wednesday could be impacted by reaction to the minutes of the latest Fed meeting, which may shed additional light on the outlook for interest rates.

On the earnings front, retailers Lowe's (LOW), Staples (SPLS), and Target (TGT) are among the companies due to report their quarterly results before the start of trading on Wednesday.