Despite an oil price rally, benchmarks closed in the red on Tuesday after a series of encouraging economic reports heightened worries about a sooner-than-expected Fed rate hike. Fed officials’ comments hinting that two to three rate hikes were likely this year weighed on key U.S indexes. The Nasdaq posted its biggest percentage drop since Aug 7.
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The Dow Jones Industrial Average (DJI) decreased 1%, or 180.73 points, to close at 17,529.98. The S&P 500 also fell 1% to close at 2,047.21. The tech-laden Nasdaq Composite Index closed at 4,715.73, losing 1.3%. The fear-gauge CBOE Volatility Index (VIX) increased 6.1% to settle at 15.57. A total of around 7.5 billion shares were traded on Tuesday, more than the last 20-session average of 7.2 billion shares. Decliners outpaced advancing stocks on the NYSE. For 62% stocks that declined, 35% advanced.
Encouraging economic data raised concerns among investors about an immediate Fed rate hike in June. The Labor Department reported that Consumer Price Index (CPI) increased 0.4% in April, in line with the consensus estimate. This was preceded by an increase of 0.1% in March. CPI posted its highest percentage rise since Feb 2013. Core CPI, which excludes food and energy prices, gained 0.2% last month, in line with the consensus estimate. This was preceded by an increase of 0.1% in March.
Moreover, the U.S. Department of Commerce reported that housing starts increased 6.6% from March to an annual rate of 1,172,000 in April. This was also higher than the consensus estimate of an increase to 1,123,000. Additionally, building permits increased 3.6% from March to 1,116,000 last month. However, the figure was less than the consensus estimate of a rise to 1,134,000.
Further, the Board of Governors of the Federal Reserve System reported that industrial production rebounded from a 0.9% decline in March to rise by 0.7% in April, posting its highest percentage increase since Nov 2014. The rise in industrial production in April was higher than the consensus expectation of 0.5% increase. Also, capacity utilization advanced from 74.9% to 75.4% last month, more than the consensus expectations of 75.2%.
Separately, San Francisco Fed President John Williams said that following continuing moderate growth, two to three rate hikes this year “makes sense.” He also said that “the data to” his mind “is creating a good case for rate increases in the next few meetings, not just June.”
Also, Atlanta Fed President Dennis Lockhart said recent “encouraging” inflation data indicated growth in U.S. economy. He added that “if the data continue to be encouraging” he would “certainly entertain some policy move in June.”
Defensive stocks like consumer staples and utilities slumped after Fed officials’ comments and favorable economic data raised rate hike woes. The Consumer Staples Select Sector SPDR ETF (XLP) fell 2% and was the biggest loser among the S&P 500 sectors. Key consumer staples stocks including Procter & Gamble Company (PG), Coca-Cola Company (KO), Philip Morris International, Inc. (PM), CVS Health Corporation (CVS), Wal-Mart Stores Inc. (WMT), Pepsico, Inc. (PEP), Altria Group, Inc. (MO) and Kraft Heinz Company (KHC) decreased 1.2%, 1.9%, 1.8%, 2.3%, 1.4%, 1.7%, 1.4% and 4.3%, respectively.
Further, the Utilities Select Sector SPDR (XLU) lost 1.7% and was the second biggest loser among the S&P 500 sectors. Key utilities stocks including NextEra Energy, Inc. (NEE), Duke Energy Corporation ( DUK), Southern Company (SO), Dominion Resources, Inc. (D), PG&E Corporation (PCG), Eversource Energy ( ES) and American Electric Power Co., Inc. (AEP) fell 1.4%, 1.8%, 1.7%, 1.6%, 2.5%, 2.7% and 2.2%, respectively.
Meanwhile, WTI oil prices reached a seven month high level yesterday after analysts projected U.S. crude inventories would fall by nearly 3.2 million barrels last week. Further production disruptions in Fort McMurray’s oil sand hub in Alberta, Canada resulted in the evacuation of nearly 4,000 people from work camps, also boosting oil prices. WTI crude rose 1.2% to $48.31 per barrel, settling at its highest level since October. Brent crude increased 0.6% to $49.28 a barrel.
Increase in oil prices led the Energy Select Sector SPDR (XLE) to increase 0.5%, which was the only gainer among the S&P 500 sectors. Key energy stocks including, Williams Companies, Inc. (WMB), Anadarko Petroleum Corporation (APC), Halliburton Company (HAL), EOG Resources, Inc. (EOG), Schlumberger Limited (SLB) and Southwestern Energy Company (SWN) 4.5%, 1.2%, 2.5%, 1.1%, 1.2% and 7%, respectively.
In earnings news, Home Depot, Inc. (HD) posted fiscal first quarter earnings of $1.44 a share more than the Zacks Consensus Estimate of $1.33 and jumped 19% year over year. Home Depot’s net sales increased 9% year over year to $22,762 million. However, the company’s shares fell 2.7% after comparable same store sales for stores that are operating for more than one year declined. Same store sales fell from February’s 10.2% to 6.7% in March and further to 4.3% in April.
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DUKE ENERGY CP (DUK): Free Stock Analysis Report
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PG&E CORP (PCG): Free Stock Analysis Report
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