Stocks retreated from record levels on Tuesday as investors considered a spate of new economic data, including a weaker-than-expected print on consumer spending during the recovery.
The S&P 500 hovered just below an all-time high, and the Dow dropped for a back-to-back session. The Nasdaq also fell to pull back from a record closing high logged on Monday. Investors considered another batch of key economic data out Tuesday morning, offering looks at both the strength of the consumer and extent of price increases across the supply chain.
The Commerce Department's May retail sales report showed the first drop in sales since February, representing some more moderation after a stimulus-boosted period earlier in the spring. And the Bureau of Labor Statistics' producer price index is anticipated to showed a 6.6% year-on-year increase, ramping from April's 6.2% rise as supply shortages and resurgent demand push prices higher.
These pieces of data served as some of the last prints to come out before the Federal Reserve issues its June monetary policy statement and holds a press conference with Fed Chair Jerome Powell. While no major policy changes are expected at this meeting, investors will be closely watching both the statement and press conference for signals of when the central bank intends to begin rolling back its crisis-era policy support systems, which had helped boost the economy and underpin stocks in their surge to new highs.
The first step in attenuating this support would be a tapering of the Fed's massive asset purchase program, with these currently taking place at a rate of $120 billion per month. The Fed has currently set a target of achieving "substantial further progress" towards its goals of achieving maximum employment and price stability before setting off any policy changes. But with the labor market recovery ramping at a solid clip and prices surging across various pockets of the economy, investors have been left to contemplate whether a tapering signal from the Fed may come sooner rather than later.
"I think the Fed has got a problem on its hands because clearly inflation has gone well beyond what Richard Clarida and other Fed members said about a year ago," Robert Dye, Comerica Bank Chief Economist, told Yahoo Finance. "They said they might tolerate inflation in the 2, 2.5% range. And we got the CPI [consumer price index] print at 5% year-over-year ... And I think the Fed has got a lot of pressure on it to define or clarify or say something other than inflation is transitory, because inflation has been here for a while."
Still, however, markets this week have suggested they are not overly concerned with the prospects of a near-term hike to interest rates, with near-zero rates having served as another key component of the Fed's crisis-era toolkit. The benchmark 10-year yield has come down by nearly 30 basis points from a March high, and technology and growth stocks have resurged to power the Nasdaq to a fresh record level.
"I would say that we're seeing the effect of the somewhat lower interest rates," Cheryl Smith, Trillium Asset Management, told Yahoo Finance. "The 10-year Treasury's gone down quite a bit and those longer duration big tech names are benefitting form it. I think the sentiment is getting more clear that the Fed is not going to start raising interest rates on Wednesday or the next meeting, or the next meeting after that. So it's really a reaction and a relief."
4:03 p.m. ET: S&P 500, Nasdaq retreat from record highs after retail sales miss; traders await Fed decision
Here were the main moves in markets as of 4:03 p.m. ET:
S&P 500 (^GSPC): -8.48 (-0.20%) to 4,246.67
Dow (^DJI): -94.02 (-0.27%) to 34,299.73
Nasdaq (^IXIC): -101.29 (-0.71%) to 14,072.86
Crude (CL=F): +$1.35 (+1.90%) to $72.23 a barrel
Gold (GC=F): -$5.90 (-0.32%) to $1,860.00 per ounce
10-year Treasury (^TNX): -0.2 bps to yield 1.4990%
12:40 p.m. ET: Investors still bullish, but sentiment is down from March and April: BofA
Investors are still largely constructive on the market backdrop heading into the coming months, but optimism has started to moderate from peak levels in the earlier stages of the recovery in March and April, according to at least one strategist.
“We continue to see a very bullish outlook from investors, but we do see they’re coming off of peak levels of optimism that we saw in March and April,” David Jones, Bank of America's director of global investment strategy, told Yahoo Finance. "Their expectations for the next 12 months in terms of economic growth, in terms of earnings, in terms of margins, all those are still at very high levels, but they're coming down a bit."
"This speaks to the theme that we had been bringing up about what we call the three P's," he added. "So that's peak profit, peak positioning and peak policy. And we think that that's going to be the factor that's driving the market going forward."
12:35 p.m. ET: New York to lift most COVID-19 restrictions 'immediately' as 70% of adults receive one or more doses of vaccine
New York Gov. Andrew Cuomo said Tuesday that most remaining COVID-19 restrictions in the state would be lifted "effective immediately," as the state has now seen at least 70% of adults receive one or more doses of a COVID-19 vaccine.
New York, once the global epicenter of the COVID-19 outbreak in spring of last year, has made strides to reduce its level of new cases, largely thanks to mass vaccinations. The seven-day rolling average in the state for new cases was at 0.4% as of June 13, for one of the lowest levels in the country. That's come down from 0.6% since the first day of June and 47.3% since April 1.
12:30 p.m. ET: Stocks hold lower as session rolls on
The three major indexes remained lower Tuesday afternoon as investors digested the latest batch of weaker-than-expected consumer spending data, and higher-than-expected inflation.
The Dow dropped more than 100 points, or 0.4%. Financials components JPMorgan Chase and Goldman Sachs lagged, with both stocks shedding more than 1%. Other components including Home Depot and Nike also moved notably to the downside.
The cyclical energy and industrials sectors outperformed in the S&P 500, while real estate and materials dipped. The Nasdaq underperformed with a decline of about 0.6%, while Treasury yields moved slightly higher.
10:31 a.m. ET: Homebuilders' confidence sinks to a 10-month low
Confidence among homebuilders unexpectedly declined in June to reach the lowest level in 10 months, with higher prices starting to weigh on demand and optimism among those in the housing industry.
The National Association of Home Builders' monthly sentiment index fell to 81 in June from 83 in May, according to a new report Tuesday. Consensus economists were looking for an unchanged reading, Bloomberg data.
“Higher costs and declining availability for softwood lumber and other building materials pushed down builder sentiment in June,” Chuck Fowke, chairman of the NAHB, said in a statement. “These higher costs have moved some new homes beyond the budget of prospective buyers, which has slowed the strong pace of home building.”
9:34 a.m. ET: Stocks open mixed, Nasdaq pulls back from record
Here's where markets were trading after the opening bell:
S&P 500 (^GSPC): -3.22 (-0.08%) to 4,251.93
Dow (^DJI): +9.18 (0.03%) to 34,402.93
Nasdaq (^IXIC): -40.56 (-0.29%) to 14,133.98
Crude (CL=F): +$0.79 (+1.11%) to $71.67 a barrel
Gold (GC=F): +$2.00 (+0.11%) to $1,867.90 per ounce
10-year Treasury (^TNX): +1 bps to yield 1.511%
8:37 a.m. ET: Retail sales drop for the first time since February in May
Retail sales registered a monthly decline in May for the first time since February, with consumer spending moderating further after a stimulus-boosted surge.
Sales for all categories dropped by 1.3% in May over April, the Commerce Department said Tuesday morning. This was worse than the 0.8% drop expected, based on Bloomberg consensus data. In April, however, retail sales were upwardly revised to show a 0.9% monthly increase, from the flat print reported previously.
Excluding auto and gas sales, retail sales were down 0.8% versus the flat print expected. This followed an increase of 0.1% in April.
7:19 a.m. ET Tuesday: Stock futures struggle for direction
Here's where markets were trading Tuesday morning:
S&P 500 futures (ES=F): 4,258.50, +3.75 points (+0.09%)
Dow futures (YM=F): 34,377.00, -4 points (-0.01%)
Nasdaq futures (NQ=F): 14,142.75, +18 points (+0.13%)
Crude (CL=F): +$0.55 (+0.78%) to $71.43 a barrel
Gold (GC=F): -$0.50 (-0.03%) to $1,865.40 per ounce
10-year Treasury (^TNX): -0.5 bps to yield 1.496%
6:20 p.m. ET Monday: Stock futures trade flat to slightly lower
Here's where markets were trading Monday evening:
S&P 500 futures (ES=F): 4,252.75, -2 points (-0.05%)
Dow futures (YM=F): 34,353.00, -28 points (-0.08%)
Nasdaq futures (NQ=F): 14,111.5, -13.25 points (-0.09%)
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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