U.S. equities moved sharply lower on Tuesday, reversing Monday’s neck-snapping gains to push large-cap stocks back below their 50-day moving average — a level of support that was broken on Friday.
Trading remains choppy as investors were deluged with chatter from Federal Reserve officials on the odds of a June rate hike heading into the release of the April meeting minutes on Wednesday. The takeaway: Officials seems to be bracing the market for two or maybe three rate hikes this year amid expectations for a one-and-done for 2016.
In the end, the Dow Jones Industrial Average lost 1%, the S&P 500 lost 0.9%, the Nasdaq Composite lost 1.3% and the Russell 2000 finished the day out with a 1.7% loss.
Treasury bonds were mixed, the dollar was little changed, gold gained 0.2% and crude oil gained 1.2% to close at its best levels since October, before falling after-hours on a smaller-than-expected inventory decline of 1.1 million barrels was less than the 3.5 million decline analysts were looking for.
Energy stocks led the way and were the only major sector group to finish in the green, adding 0.2%. Consumer staples were the laggards, down 1.9%. The rise in volatility boosted the VelocityShares 2x VIX (NASDAQ:TVIX) recommended to Edge subscribers to an 8%-plus gain.
Online music streamer Pandora Media Inc (NYSE:P) gained 6.1% after Corvex Capital disclosed an 8.3% stake and believes the company should explore strategic alternatives, including a sale, instead of pursuing a “costly and uncertain” business plan. Home Depot Inc (NYSE:HD) dropped 2.5% after reporting a first-quarter earnings beat on strong sales and expense control. Comp-store sales came in at 6.5% ahead of last year, beating the 5.2% consensus estimate. But investors were disappointed a slowdown in comp-store sales growth amid elevated expectations.
On the economic front, April consumer price inflation gained 0.4% month-over-month, beating expectations for a 0.3% gain and topping March’s 0.1% rise. This was the best result since February 2013 pushing the year-over-year rate up to 1.1% as crude oil prices stabilize. Gasoline price were up 8.1% following a 2.2% increase in March. Core year-over-year inflation dropped slightly, however, to 2.1%.
Separately, housing starts increased 6.6% over last month to a 1.17 million seasonally adjusted annualized rate in April and industrial production came in ahead of expectations with a 0.7% increase driven by utility demand rebounding from a warmer-than-normal March.
Turning to the Fed, no less than four officials were out making comments today including San Francisco Fed President John Williams, who repeated that two or three rates hikes for the year was a reasonable assumption. This was echoed by Atlanta Fed President Lockhart; Richmond Fed President Lacker told the Washington Post that the case for a June rate hike was pretty strong; and Dallas Fed President Kaplan said the U.S. economy was strong enough to justify a rate hike in the “not too distant future.”
Watch for more Fed headlines with the release of the April meeting minutes on Wednesday and comments from New York Fed President Dudley on Thursday followed by a speech from Federal Reserve Board Chair Janet Yellen next Friday.
On a technical basis, the situation remains shaky as the Dow contends with a three-month head-and-shoulder reversal pattern — with a neckline just below current levels — that traces a price target down near 17,000.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
