U.S. Stocks Give Back Ground After Yesterday’s Advance To Record Highs

After ending the previous session modestly higher, stocks moved back to the downside during trading on Tuesday. With the drop on the day, the major averages pulled back off Monday’s record closing highs.

The major averages all finished the day in negative territory. The Dow slipped 107.39 points or 0.3 percent to 34,888.79, the Nasdaq fell 55.59 points or 0.4 percent to 14,677.65 and the S&P 500 dipped 15.42 points or 0.4 percent to 4,369.21.

Stocks moved lower in afternoon trading as treasury yields rose after the Treasury Department revealed this month’s auction of $24 billion worth of thirty-year bonds attracted below average demand.

The thirty-year bond auction drew a high yield of 2.000 percent and a bid-to-cover ratio of 2.19, while the ten previous thirty-year bond auctions had an average bid-to-cover ratio of 2.33.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

The lower close on Wall Street also came after the Labor Department released a report showing consumer prices in the U.S. saw the biggest monthly increase in thirteen years in the month of June.

The Labor Department said its consumer price index jumped by 0.9 percent in June after climbing by 0.6 percent in May. Economists had expected consumer prices to rise by 0.5 percent.

The bigger than expected increase in consumer prices reflected the biggest advance since prices surged up by 1.0 percent in June of 2008.

Excluding food and energy prices, core consumer prices still jumped by 0.9 percent in June following a 0.7 percent increase in May. Core prices were expected to rise by 0.4 percent.

The annual rate of consumer price growth accelerated to 5.4 percent in June from 5 percent in May, reaching the highest level since a matching spike in August of 2008.

Core consumer prices were up by 4.5 percent year-over-year in June, reflecting an acceleration from the 3.8 percent jump in May. Core prices saw the biggest annual increase since November of 1991.

“The surge in demand triggered by the easing of Corona-related restrictions is causing significant bottlenecks and price increases in parts of the economy,” said Dr. Christoph Balz, Senior Economist at Commerzbank. “Under these circumstances, the Fed’s tapering of its bond purchases is drawing closer.”

On the earnings front, financial giants JPMorgan Chase (JPM) and Goldman Sachs (GS) both reported quarterly results that exceeded analyst estimates on both the top and bottom lines.

Snack and beverage giant PepsiCo (PEP) also reported better than expected second quarter results and raised its full-year guidance.

Sector News

Airline stocks moved sharply lower over the course of the session, resulting in a 2.7 percent nosedive by the NYSE Arca Airline Index.

Substantial weakness also emerged among housing stocks, as reflected by the 2.4 percent slump by the Philadelphia Housing Sector Index.

Computer hardware stocks also showed a significant move to the downside on the day, dragging the NYSE Arca Computer Hardware Index down by 2 percent.

Oil service, tobacco and banking stocks also saw considerable weakness, while gold stocks moved notably higher

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Tuesday. Japan’s Nikkei 225 Index and China’s Shanghai Composite Index both climbed by 0.5 percent, while Hong Kong’s Hang Seng Index jumped by 1.6 percent.

Meanwhile, the major European markets ended the day roughly flat. The U.K.’s FTSE 100 Index, the German DAX Index and the French CAC 40 Index all ended the day just below the unchanged line.

In the bond market, treasuries came under pressure following the disappointing results of the thirty-year bond auction. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 5.2 basis points to 1.415 percent.

Looking Ahead

Congressional testimony from Federal Reserve Chari Jerome Powell is likely to attract attention on Wednesday along with the Fed’s Beige Book.

Trading may also be impacted by reaction to the latest earnings news, with Bank of America (BAC), Citigroup (C), Delta Air Lines (DAL) and Wells Fargo (WFC) among the companies due to report their quarterly results before the start of trading.

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