Stocks mostly inched lower on Tuesday as traders await the release of the latest Federal Reserve meeting minutes on Wednesday for clues as to the pace and timing of possible interest rate hikes later this year. Yet the large-caps in the Dow were able to notch a fresh closing high.
Some dovish comments out of the European Central Bank — concerning a seasonal ramp-up in bond purchase stimulus — sent the euro lower against the dollar and hit commodity prices hard.
Gold lost 1.7% while crude oil fell 3.7%. Also contributing to the dollar’s strength was an impressive U.S. housing starts/permits report.
In the end, the Dow Jones Industrial Average gained 0.1% to close at a new record high, the S&P 500 and the Russell 2000 lost 0.1%, and the Nasdaq Composite lost 0.2%.
Energy and materials stocks were hit the hardest with AK Steel Holding Corporation (NYSE:AKS) down 7.3% and Freeport McMoRan Inc (NYSE:FCX) down 3.8%. Crude oil is now down for its fifth consecutive session. Gold snapped a five-day winning streak.
Aside from currency movements, there’s been a lot of analyst chatter about the way crude oil futures have disconnected from the ongoing glut in the physical market. Goldman Sachs said global imbalances should push crude oil prices back towards $45 a barrel by October. Citigroup argued that the rally in iron ore prices has peaked should should slide into the second half of the year.
Retailers continue to get hit hard on earnings/sales releases with Wal-Mart Stores, Inc. (NYSE:WMT) down 4.4% — after looking ready for a possible upside breakout on Monday — on weaker-than-expected Q1 comp-store sales and soft earnings as well as guiding Q2 below analyst estimates. Home Depot Inc (NYSE:HD) lost 1.7%.
Yahoo! Inc. (NASDAQ:YHOO) got slammed 7.5% in late trading on reports of possible tax treatment changes from the IRS concerning spin-offs — something that jeopardizes the company’s planned spin-off of its stake in Alibaba Group Holding Ltd (NYSE:BABA). Shares finished at their lowest level since October.
Housing starts jumped 20.2% to a seasonally-adjusted annual rate of 1.1 million in April ahead of the 1 million rate analysts were expecting. This is the largest since February 1991 as starts return to the high level since November 2007 as the drag from severe winter weather fades. Permits increased to the highest level since June 2008.
Still, enthusiasm was tempered somewhat by the fact that mortgage rates have been drifting higher on the back of weakness in long-term Treasury bonds.
Looking ahead, Wednesday’s FOMC minutes and Federal Reserve chairman Janet Yellen’s speech on Friday will be closely scrutinized for clues. The April policy meeting came before the April employment and retail sales reports — meaning that Yellen’s speech is probably the bigger of the two catalysts.
Oksana Poltavets at Deutsche Bank believes the takeaways from all this will reinforce that a June rate hike is off the table, making Sept. 17 the most likely date for the first interest rate hikes since 2006.
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