Kristian Rouz – Unexpectedly optimistic macroeconomic data arrived early on Tuesday, prompting the biggest retreat in three weeks in US shares as investors were spooked by increased bets on a looming US Fed interest hike. Overseas risks were also a factor for trading dynamics on Wall Street, with Greece likely unable to pay off its debt obligations.
Both indices had repeatedly posted their all-time highs last week, and are still prone on advance amidst rife demand for stock among investors, both domestic and international. However, as macro data has supported Janet Yellen’s (the Fed chair) monetary tightening aspirations, Wall Street might be now facing a prolonged period of correction in stock valuation.
Energy stocks were among the most affected, with the S&P 500 energy Index down 1.6%. Infrastructure was also hit as the Dow Jones’ transportation average was 1.6% down, hitting its lowest since last autumn. Tech shares on the S&P lost 1.4%. Shares of small businesses listed on Wall Street also declined with Russell 2000 Index retreating 1.1%.
The Nasdaq Composite Index lost 1.1%.
The data published early on Tuesday showed better-than-expected sales in new houses, while orders for capital equipment also outpaced the estimates. Future corporate spending rose 1% in April compared to the 1.5% increase a month before, according to the Department of Commerce. Machine engineering industries have performed the best in eight months.
“The worst is probably behind us,” Michael Feroli of the New York-based JPMorgan Chase & Co. said. “It’s not a vigorous rebound, but it is getting better.”
Demand for cars increased 0.3% in April after a 4.2% rise in March, while effective sales in cars and small trucks amounted to only 16.5 mln in April compared to 17.1 mln the prior month, which is above the 2014 average of 16.4 mln.
The current consensus among markets participants is that the Fed will hike rates in September, supported by the rebound in real economy after the winter freeze.
The reason is, while there is a lot of downward pressure on the market, the abundance of investment money is still a major upward factor. Market participants are getting hysterical in a situation where stocks are moving against the fundamentals.
In commodities, gold futures slid 1.4% to $1.187.20/oz during the day, rebounding by 0.14% to $1,189.50 afterwards. Crude oil futures also slipped against a stronger dollar, rebounding 1.31% to $58.79/bbl in the US overnight.
