By Ellie Ismailidou and Victor Reklaitis, MarketWatch
S&P, Dow join Nasdaq in negative territory for the year
U.S. stocks sold off sharply Thursday on mounting fears that the
Federal Reserve's next interest-rate hike could come as early as
June.
A flurry of mixed economic data failed to calm investors' fears
that the U.S. central bank would keep rates lower for longer amid
hawkish comments by Fed policy makers Thursday morning.
Wall Street shrugged off strong earnings reports from Wal-Mart
and Cisco--which initially helped offset declines in the Dow.
And a drop in oil prices
(http://www.marketwatch.com/story/oil-prices-drop-on-dollar-strength-rising-inventories-2016-05-19),
which declined due to a stronger dollar and an unexpected increase
in U.S. crude inventories, pulled down the shares of energy and
industrial companies, eroding appetite for risky assets, like
stocks.
The S&P 500 fell 21 points, or 1%, to 2,026, led by sharp
losses in telecom stocks, down 1.7%. The industrial sector was the
second-worst performer, down 1.4%. Utilities and consumer-staples
stocks were the only sectors in positive territory, both up roughly
2%. The S&P was down 0.8% for the year.
The Dow industrials fell 186 points, or 1.1%, to 17,340 led by
sharp losses in Goldman Sachs Group Inc.(GS) and Boeing Co.(BA),
both down 2.7%. The Dow was down 5.3% for the year on Thursday.
Meanwhile, the Nasdaq Composite fell 52 points, or 1.1%, to 4,688.
Thursday's moves came after minutes from the Fed's latest
meeting
(http://www.marketwatch.com/story/most-on-fed-ready-to-hike-rates-in-june-if-economic-data-strong-minutes-show-2016-05-18)
suggested the Fed is seriously considering raising interest rates
at its coming meeting in June, provided the U.S. economy continues
to strengthen.
Market strategists said the idea that rates could rise sooner
than they expected has made investors uncomfortable, causing them
to dump stocks.
"It's a knee-jerk reaction," said Kent Engelke, chief economic
strategist at Capitol Securities Management. The market is still
"hijacked" by central bank action, Engelke said, and "any remote
hints of monetary policy change makes stocks trade off."
Mounting rate-hike fears were also behind the sharp losses for
telecom stocks, said Michael Arone, chief investment strategist at
State Street Global Advisors.
Stocks that are typically viewed as income substitutes or bond
proxies become expensive when the Fed is about to raise interest
rates and typically sell off, Arone said.
Still, many analysts were questioning the central bank's hawkish
posture, given doubts about the U.S. economy's strength. Adding to
those doubts, ratings agency Moody's on Thursday cut its 2016
forecast for U.S
(http://www.marketwatch.com/story/moodys-downgrades-2016-growth-forecast-to-2-from-23-2016-05-19).
economic growth to 2%, down from 2.3%.
"For investors, it is confirmation that the ratings agency does
not have as much confidence in the U.S. economy as perhaps the Fed
members had envisaged," said Naeem Aslam, ThinkForex's chief market
analyst, in a note.
A flurry of mixed data on Thursday didn't offer investors more
clarity about the health of the economy.
The number of Americans who applied for unemployment benefits
(http://www.marketwatch.com/story/jobless-claims-sink-16000-to-278000-2016-05-19)
in mid-May fell by 16,000 to 278,000--with most of the drop
concentrated in New York--in a reassuring sign the labor market is
still fairly healthy. And a basket of leading economic indicators
(http://www.wsj.com/articles/conference-boards-leading-economic-index-jumped-in-april-1463668092)
advanced at a quicker clip in April, suggesting U.S. growth will
pick up after a slow start to the year.
But the Philadelphia Fed's barometer of regional manufacturing
activity
(http://www.marketwatch.com/story/philly-fed-index-dips-to-negative-18-in-may-2016-05-19)
dropped further into negative territory this month, far below
analysts' expectations, on a decline in new orders.
"We now have two manufacturing [indexes] for May back below
zero. A few days ago we saw the New York index fall into negative
territory," said Peter Boockvar, chief market analyst at The
Lindsey Group, in emailed comments.
Boockvar questioned whether the stagnation in manufacturing
would warrant the Fed's intention to normalize rates. But others
were more optimistic.
"Collectively, this data reflects the mixed nature of the
economy and suggests that overall growth is going to rebound
following a slow start to the year," said Thomas Simons, senior
money market economist at Jefferies, in emailed comments.
More Fed talk: Different Fed officials offered further hawkish
commentary on Thursday, which rattled the market.
Richmond Fed President Jeffrey Lacker defended the Fed's hawkish
stance in an interview with Bloomberg on Thursday, saying that the
case is pretty strong for a June hike
(http://www.marketwatch.com/story/richmond-feds-lacker-says-brexit-shouldnt-cause-delay-in-raising-interest-rates-2016-05-19).
Lacker, who is a nonvoting member of the Federal Open Market
Committee, argued that markets took the wrong signal from the Fed's
decision to stand pat on interest rates in March and April.
Fed Vice Chairman Stanley Fischer said Thursday that the U.S.
needs faster potential growth
(http://www.marketwatch.com/story/feds-fischer-says-us-needs-faster-potential-growth-2016-05-19-91032131)but
he didn't discuss the short-term outlook for monetary policy or the
economy.
And New York Fed President William Dudley said an interest-rate
increase in June or July is possible if fresh data confirm his
optimistic forecast of economic growth.
Individual movers: Shares in Wal-Mart Stores Inc.(WMT) rose 9%
after the giant retailer's quarterly earnings beat forecasts
(http://www.marketwatch.com/story/wal-mart-shares-jump-after-earnings-beat-estimates-upbeat-outlook-2016-05-19).
Wal-Mart's rise put its stock on track to log its best one-day gain
in more than seven years.
Cisco Systems Inc. was on track for its largest daily gain in
three months, rising 4%, following its upbeat results late
Wednesday
(http://www.marketwatch.com/story/cisco-gains-as-results-forecast-beat-expectations-2016-05-18).
Agricultural giant Monsanto Co.(MON) jumped 5.2% as chemicals
company Bayer AG(BAYN.XE) confirmed it had approached Monsanto
about a takeover
(http://www.marketwatch.com/story/bayer-makes-takeover-approach-to-monsanto-2016-05-19).
Advance Auto Parts Inc.(AAP) trimmed sharp premarket losses to
traded down 1% after the seller of car parts posted quarterly
results that missed expectations and said its chief financial
officer will depart
(http://www.marketwatch.com/story/advance-auto-parts-shares-plunge-after-results-miss-expectations-cfo-resigns-2016-05-19).
Retailer Dick's Sporting Goods Inc.(DKS) gained 8.2% despite
offering downbeat guidance
(http://www.marketwatch.com/story/dicks-sporting-goods-shares-drop-after-downbeat-guidance-2016-05-19).
Read more:Traditional retailers stumble in competing with Amazon
(http://www.marketwatch.com/story/traditional-retailers-stumble-in-their-efforts-to-compete-with-amazon-2016-05-12)
And see:Target is the latest retailer to feel the "Amazon
effect"
(http://www.marketwatch.com/story/target-is-the-latest-retailer-to-feel-the-amazon-effect-2016-05-18)
Shares in Google parent Alphabet Inc.(GOOGL) (GOOGL) were down
roughly 1% following news late Wednesday about new efforts in cloud
computing
(http://www.marketwatch.com/story/diane-greene-google-very-serious-with-enterprise-cloud-ambitions-2016-05-18)
and artificial intelligence
(http://www.marketwatch.com/story/google-rolls-out-new-products-relying-on-artificial-intelligence-2016-05-18).
Other markets: European stocks traded lower, with travel-related
names falling
(http://www.marketwatch.com/story/travel-operators-airlines-slump-after-egyptair-plane-vanishes-2016-05-19)
after an EgyptAir plane vanished from radar
(http://www.marketwatch.com/story/egyptair-flight-ms804-vanishes-from-radar-en-route-to-cairo-2016-05-19).
Asian markets mostly closed in the red
(http://www.marketwatch.com/story/asian-stocks-choppy-as-fed-news-turns-investors-wary-2016-05-18).
The ICE U.S. Dollar Index rose, helped by a rate hike looking more
likely. That weighed on dollar-denominated commodities such as gold
(http://www.marketwatch.com/story/gold-prices-drop-as-interest-rate-rise-looks-more-likely-2016-05-19)
and crude oil which were both lower early Thursday.
(END) Dow Jones Newswires
May 19, 2016 11:28 ET (15:28 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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