US markets closed lower; S&P, Dow suffers biggest drop in 3 week

27 May 2015 Evaluate

The US markets closed lower on Tuesday, with the S&P 500 and Dow suffering their biggest one-day declines in three weeks. A sharp increase in the dollar spurred global investors to dump riskier assets such as equities and commodities, while driving them into havens such as treasuries. The dollar rallied on the back of the inflation data on Friday and hawkish comments from Federal Reserve Chairwoman Janet Yellen, warning that a rate hike is still in the cards for 2015. Federal Reserve chairwoman Janet Yellen has stated that she expects interest rates to rise this year, in what would be the first rate hike from near zero since the 2008 economic crisis. Yellen added that if the US economy continues to strengthen, it will be appropriate at some point this year to take the initial step to raise the federal funds rate. However, she cautioned the market not to expect any rapid increase in rates. In the meanwhile, US Federal Reserve Vice-Chair Stanley Fischer stated that the Federal Reserve should weigh the impact of its policy decisions on global economies and should expect spillovers back to the US economy once it starts raising interest rates. At the same time, Fischer enlightened that the Fed is not the world’s central bank, and will calibrate policy based on its domestic objectives of fostering full US employment and 2 percent inflation.

On the economy front, orders for durable US goods fell a seasonally adjusted 0.5% in April. Yet orders minus transportation rose 0.5%. Orders for core capital goods - a proxy for business investment - climbed 1% to mark the second straight gain. Shipments of core capital goods, a category used to help determine quarterly economic growth increased 0.8% in April. Separately, the Conference Board reported a slight rise in consumer confidence in May. Its index rose to 95.4 from 94.3 in April, as a gain in the present situation index outweighed a small loss in expectations. While current conditions in the second quarter appear to be improving, consumers still remain cautious about the short-term outlook. However, sales of new homes in the US snapped back in April, and shoppers have been more active in the first four months of 2015 than any time in the past seven years. Sales of new single-family homes climbed 6.8% in April to an annual rate of 517,000.

The Dow Jones Industrial Average lost 190.48 points or 1.04 percent to 18,041.54, Nasdaq was down by 56.61 points or 1.11 percent to 5,032.75 while, S&P 500 was lower by 21.86 points or 1.03 percent to 2,104.20.

The Indian ADRs closed mostly in red on Tuesday; Tata Motors was down by 3.33%, Dr. Reddy’s Lab was down 2.32%, HDFC Bank was down0.80% and Infosys was down by 0.51%. On the other hand, Wipro was up by 0.01%.

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