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Stocks Show Significant Move Back To The Downside - U.S. Commentary


After ending the previous session modestly higher, stocks showed a significant move back to the downside during trading on Tuesday. The major averages pulled back sharply in morning trading and remained firmly negative throughout the afternoon.

The major averages regained some ground going into the close but still ended the day notably lower. Dow slumped 193.00 points or 0.8 percent to 24,706.41, the Nasdaq fell 59.69 points or 0.8 percent to 7,351.63 and the S&P 500 slid 18.68 points or 0.7 percent to 2,711.45.

Profit taking may have contributed to the weakness on Wall Street following a recent upward trend. The modest gains posted on Monday lifted the major averages to their best closing levels in two months.

Negative sentiment was also generated in reaction to react to earnings news from home improvement retailer Home Depot (HD).

Shares of Home Depot moved notably lower after the company reported first quarter earnings that beat analyst estimates but weaker than expected sales.

Traders were also reacting to a jump in U.S. treasury yields, with the yield on the benchmark ten-year note surging up to its highest levels since 2011.

The increase in treasury yields came after a report from the Commerce Department showed retail sales increased in line with economist estimates in the month of April.

The Commerce Department said retail sales rose by 0.3 percent in April after climbing by an upwardly revised 0.8 percent in March.

Economists had expected sales to rise by 0.3 percent compared to the 0.6 percent increase originally reported for the previous month.

Excluding a modest increase in auto sales, retail sales still rose by 0.3 percent in April following an upwardly revised 0.4 percent increase in March.

Ex-auto sales have been expected to climb by 0.5 percent compared to the 0.2 percent uptick originally reported for the previous month.

A separate report from the National Association of Home Builders showed an unexpected improvement in homebuilder confidence in the month of May.

The report said the NAHB/Wells Fargo Housing Market Index rose to 70 in May from a downwardly revised 68 in April. Economists had expected the index to come in unchanged compared to the 69 originally reported for the previous month.

Sector News

Housing stocks moved sharply lower over the course of the trading session, as concerns about the impact of higher interest rates overshadowed the upbeat homebuilder confidence data.

Reflecting the weakness in the housing sector, the Philadelphia Housing Sector Index plunged by 2.6 percent on the day.

Substantial weakness was also visible among gold stocks, as reflected by the 2.2 percent slump by the NYSE Arca Gold Bugs Index. With the drop, the index fell to its lowest closing level in a month.

The weakness in the gold sector came amid a sharp decline by the price of the precious metal, with gold for June delivery plummeting $27.90 to $1,290.30 an ounce.

Real estate, healthcare, telecom, and semiconductor stocks also moved significantly lower, reflecting broad based weakness on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Tuesday. Japan's Nikkei 225 Index dipped by 0.2 percent, while Hong Kong's Hang Seng Index slumped by 1.2 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the German DAX Index edged down by 0.1 percent, the U.K.'s FTSE 100 Index and the French CAC 40 Index both rose by 0.2 percent.

In the bond market, treasuries showed a significant move to the downside. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped by 8.5 basis points to 3.080 percent, its highest closing level since July of 2011.

Looking Ahead

Trading on Wednesday may be impacted by reaction to U.S. economic reports on housing starts and industrial production.

On the earnings front, department store operator Macy's (M) is due to release its first quarter results before the start of trading on Wednesday.

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