By Anora Mahmudova and Sara Sjolin, MarketWatch
CBOE Volatility index spikes 16%
U.S. stocks sold off on Tuesday with the S&P 500 and Dow
suffering their biggest one-day declines in three weeks. A sharp
increase in the dollar spurred global investors to dump riskier
assets such as equities and commodities, while driving them into
havens such as Treasurys.
The S&P 500 (SPX) closed off 21.86 points, or 1%, lower at
2,104.20, with all 10 main sectors declining. The Dow Jones
Industrial Average (DJI) dropped 190.48 points, or 1%, to
18,041.54, while the Nasdaq Composite Index (RIXF) ended the
session 56.61 points lower, or down 1.1%, at 5,032.75.
U.S. markets were closed for Memorial Day on Monday.
The dollar
(http://www.marketwatch.com/story/euro-drops-on-greek-debt-fears-dollar-nears-year-high-versus-yen-2015-05-26)
(DXY) rallied on the back of the inflation data on Friday and
hawkish comments from Federal Reserve Chairwoman Janet Yellen,
warning that a rate hike is still in the cards for 2015.
Oil and gold prices tumbled on the dollar's move, while
Treasurys rose, sending the yield on the 10-year note down 7 basis
points to 2.14%. A spike in the CBOE Volatility index (VIX), which
measures implied volatility on the S&P 500, suggests investors
are increasingly nervous about a possible pullback.
JJ Kinahan, chief strategist at TD Ameritrade, said a sudden
spike in the dollar following remarks made Friday by Fed Chairwoman
Janet Yellen continued to hit markets, damping earnings
expectations from companies already struggling from falling
revenues due to currency fluctuations.
But Kinahan stressed that the overall trend is still positive in
the market. "The spike in the Vix means people are finally buying
protection and also shifting into Treasuries again. But until we
breach 2,100, Tuesday's move is not a big deal," he noted.
Colin Cieszynski, chief market strategist at CMC Markets, said
speculation that rate hikes can come sooner are back.
"The Federal Reserve is data-dependent and with all the weaker
data during the winter, investors had previously written off rate
hikes this summer, but stronger data is shifting those
expectations," Cieszynski said.
Cieszynski also noted that seasonally the period between end of
May and the next earnings season is usually weak for stock
prices.
Positive readings on recent economic data, including a pick up
in inflation and job gains, have stoked fears that an interest-rate
hike may come sooner than anticipated, unnerving some investors. On
Tuesday, a report on durable-goods orders showed signs of revival
in business investment in April.
Also read: Signs of revival in business investment seen in April
durable-goods report
(http://www.marketwatch.com/story/signs-of-revival-in-business-investment-seen-in-april-durable-goods-report-2015-05-26)
U.S. house prices rose 0.9% in March to take the year-over-year
advance to 5%, according to the S&P/Case-Shiller 20-city
composite index
(http://www.marketwatch.com/story/city-by-city-look-at-house-prices-as-san-francisco-surges-again-2015-05-26)
released Tuesday. With seasonal adjustment, prices were up by 1%,
the report said.
New-home sales climbed by more than expected, suggesting
improvement in the housing market after sluggish winter months.
Separately, consumer confidence edged higher in May, also
topping economists forecasts.
Fed speakers:The Federal Reserve could take a slower approach to
raising interest rates
(http://www.marketwatch.com/story/feds-fischer-weaker-than-expected-foreign-growth-could-slow-rates-2015-05-26)if
weaker-than-expected growth overseas affects the U.S. economy, Fed
Vice Chairman Stanley Fischer said.
In a speech on Monday, Fischer also said he sees the Fed's
short-term rate at 3.25%-4% in three to four years
(http://www.marketwatch.com/story/feds-fischer-sees-short-term-rate-at-325-4-in-three-to-four-years-2015-05-26).
Movers and shakers: Shares of Time Warner Cable Inc.(TWC) surged
7.3%, after Charter Communications Inc. (CCMMV) said it w buy the
cable-TV company
(http://www.marketwatch.com/story/charter-to-merge-with-time-warner-in-55-billion-deal-2015-05-26-61034117)
for $55 billion in a cash-and-stock deal. Charter shares were up
2.5%.
Rival Cablevision Systems Corp. (CVC) and Comcast Corp. (CMCSA)
also rose 3.5% and 1.2% respectively.
First Solar, Inc. (FSLR) share plunged 7.3% after RBC cut the
rating to underperform from sector perform.
For more on the day's notable movers, read Movers & Shakers
column
(http://www.marketwatch.com/story/autozone-workday-tivo-earnings-in-focus-2015-05-25).
Other markets: European stock markets closed lower as investors
continued to track developments in Greece's bailout negotiations
(http://www.marketwatch.com/story/greece-wont-meet-imf-repayments-in-june-interior-minister-says-2015-05-24).
The euro traded as low as $1.0877 on Tuesday, its lowest level
since April 28, down from $1.0978 on Monday.
Asian markets closed mixed
(http://www.marketwatch.com/storyno-meta-for-guid), while oil
(http://www.marketwatch.com/story/oil-prices-hold-tight-with-headwinds-in-the-way-of-further-gains-2015-05-26)(CLN5)
and metals prices were hit by the dollar rally. Oil futures settled
2.8% lower at $58.03 a barrel, while gold prices
(http://www.marketwatch.com/story/gold-futures-slide-falling-under-1200-2015-05-26)dropped
1.4%, to settle at $1,186.90.
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