By Anora Mahmudova and Sara Sjolin, MarketWatch
CBOE Volatility index spikes 17%
U.S. stocks dropped on Tuesday as a sharp increase in the dollar
sent investors into havens such as Treasury bonds.
The dollar rallied on the back of the inflation data on Friday
and continued its ascent on Tuesday following stronger economic
data (http://www.marketwatch.com/storyno-meta-for-guid) that
supported those that see an interest-rate hike later this year. Oil
and gold prices tumbled on the dollar's move, while Treasurys rose,
sending the yield on the 10-year note down 4 basis points to 2.19%.
A spike in the CBOE Volatility index (VIX), which measures implied
volatility on the S&P 500, suggests investors are increasingly
nervous about a possible pullback.
The S&P 500 (SPX) fell 20 points, or 0.9%, lower at 2,106.
The Dow Jones Industrial Average (DJI) dropped 180 points, or 1%,
to 18,1052. The Nasdaq Composite (RIXF) dropped 56 points, or 1.1%,
to 5,033.
U.S. markets were closed for Memorial Day on Monday.
Colin Cieszynski, chief market strategist at CMC Markets, said
speculation that rate hikes can come sooner are back.
"The Federal Reserve is data-dependent and with all the weaker
data during the winter, investors had previously written off rate
hikes this summer, but stronger data is shifting those
expectations," Cieszynski said.
Cieszynski also noted that seasonally the period between end of
May and the next earnings season is usually weak for stock
prices.
Positive readings on recent economic data, including a pick up
in inflation and job gains, have stoked fears that an interest-rate
hike may come sooner than anticipated, unnerving some investors. On
Tuesday, a report on durable-goods orders showed signs of revival
in business investment in April.
Also read: Signs of revival in business investment seen in April
durable-goods report
(http://www.marketwatch.com/story/signs-of-revival-in-business-investment-seen-in-april-durable-goods-report-2015-05-26)
U.S. house prices rose 0.9% in March to take the year-on-year
advance to 5%, according to the S&P/Case-Shiller 20-city
composite index
(http://www.marketwatch.com/story/city-by-city-look-at-house-prices-as-san-francisco-surges-again-2015-05-26)
released Tuesday. With seasonal adjustment, prices were up by 1%,
the report said.
New-home sales climbed by more than expected, suggesting
improvement in the housing market after sluggish winter months.
Separately, consumer confidence edged higher in May, also
topping economists forecasts.
Fed speakers: Fed Vice Chairman Stanley Fischer speaks on "the
Fed and the global economy" in Tel Aviv, Israel at 7:30 p.m. local
time or 12:30 p.m. Eastern.
In a speech on Monday, Fischer said he sees the Fed's short-term
rate at 3.25%-4% in three to four years
(http://www.marketwatch.com/story/feds-fischer-sees-short-term-rate-at-325-4-in-three-to-four-years-2015-05-26).
Richmond Fed President Jeffrey Lacker, who is not a voting
member of the Federal Open Market Committee this year, gives a
speech on financial stability at Louisiana State University in
Baton Rouge, La. at 8:10 p.m. Eastern.
The speeches come after Fed Chairwoman Janet Yellen on Friday
warned that a rate hike is still in the cards for 2015.
Movers and shakers: Shares of Time Warner Cable Inc.(TWC) surged
4.4%, after Charter Communications Inc. (CCMMV) said it will buy
the cable-TV company
(http://www.marketwatch.com/story/charter-to-merge-with-time-warner-in-55-billion-deal-2015-05-26-61034117)
for $55 billion in a cash-and-stock deal. Charter shares were up
1%.
Rival Cablevision Systems Corp. (CVC) and Comcast Corp. (CMCSA)
also rose 2% and 1% respectively.
Cerulean Pharma Inc. (CERU) jumped 4% after the biotech company
said the U.S. Food and Drug Administration has granted orphan drug
designation to its CRLX101 drug, a treatment for ovarian
cancer.
For more on the day's notable movers, read Movers & Shakers
column
(http://www.marketwatch.com/story/autozone-workday-tivo-earnings-in-focus-2015-05-25).
Other markets: European stock markets were mainly lower as
investors continued to track developments in Greece's bailout
negotiations
(http://www.marketwatch.com/story/greece-wont-meet-imf-repayments-in-june-interior-minister-says-2015-05-24).
The euro traded as low as $1.0884 on Tuesday, its lowest level
since April 28, down from $1.0978 on Monday
Asian markets closed mixed
(http://www.marketwatch.com/storyno-meta-for-guid), while oil
(http://www.marketwatch.com/storyno-meta-for-guid)(CLN5) and metals
prices were hit by the dollar rally.
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