Benchmarks ended in the red on Tuesday after upbeat consumer data raised fears of an imminent rate hike. Mounting expectations of a rate hike this year also strengthened the dollar, but a strong dollar erodes the earnings of U.S. firms that sell their goods overseas. The dollar's strength along with crude oversupply also weighed on oil prices .
For a look at the issues currently facing the markets, make sure to read today's Ahead of Wall Street article.
The Dow Jones Industrial Average (DJI) decreased 0.3%, to close at 18,454.30. The S&P 500 dropped 0.2% to close at 2,176.12. The tech-laden Nasdaq Composite Index closed at 5,222.99, losing 0.2%. The fear-gauge CBOE Volatility Index (VIX) advanced 0.6% to settle at 13.02. A total of around 3 billion shares were traded on Tuesday on the NYSE. Decliners outpaced advancing stocks on the NYSE. For 50% stocks that declined, 46% advanced.
Consumer Data Heightens Fear of Rate Hike
According to the Conference Board, the consumer confidence index climbed to 101.1 in August an 11-month high. This was way above the consensus expectation of 97.4. Strong job additions and cheap gas prices more than offset uncertainty surrounding the upcoming presidential elections and weak global economic growth.
Fed Vice Chairman Stanley Fischer said that "we're reasonably close to what is thought of as full employment. The inflation rate this year is higher than last year's. It's still not up to 2 percent. But it's been growing." He added that the U.S. economy has also strengthened, while he also said that Fed Chair Janet Yellen's speech to the Jackson Hole summer retreat was "consistent" with a possible two rate hikes this year (read more: Bet on these 5 Midwest Bank Stocks as Fed Rate Hike Looms ).
Low interest rates for a considerable period of time had helped the broader markets gain traction. However, a potential interest rate hike this year, dragged the broader markets down yesterday. Utilities declined the most among the S&P 500 sectors since a rate hike will increase cost of capital and eventually decrease profitability. The Utilities Select Sector SPDR (XLU) dropped 1.1%, with two of its major components including NextEra Energy, Inc. ( NEE ) and Duke Energy Corporation ( DUK ) decreasing 0.9% and 1.1%, respectively.
The Dollar Strengthens
Expectations that the Fed will move closer to rate hike helped the dollar hit multi-week highs. The dollar Index, which measures the greenback against a basket of six major rivals rose to an almost three-week high of 96.064 yesterday.
Oil prices dip on stronger dollar as it makes oil more expensive for holder of other currencies, which might possibly cap demand. Additionally, rise in crude stockpiles by 942,000 barrels in the week to Aug. 26 to 525.2 million also had a negative impact on oil prices. WTI crude fell 1.4% to $46.35 per barrel. Brent crude also declined 1.8% to $48.37 a barrel.
Stocks that Made Headlines
H&R Block Inc. ( HRB ) reported loss from continuing operations during fiscal first-quarter 2017. Owing to seasonality of its tax business, H&R Block typically reports loss in the fiscal first quarter. ( Read More )
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