The US markets closed lower on Tuesday, with a lengthy winning streak for the Dow coming to an end as a benchmark government bond yield jumped to a multiyear high, challenging appetite for equities compared with climbing rates for risk-free bonds. The day's losses were widespread and steep, with major indexes seeing their biggest one-day drop in about three weeks. Dallas Federal Reserve Bank President Robert Kaplan said he wasn't concerned with the rise in the yield on the 10-year Treasury note which pushed further above 3% to its highest level since 2011. Kaplan added that to the extent the curve gets a little steeper that gives the Fed a little more operating room. In his earlier remarks, Kaplan said the Fed should continue to raise rates but didn't offer a view on how many more increases it should deliver in 2018. Kaplan enlightened that US inflation is rising toward the Federal Reserve's 2 percent goal while not accelerating enough to suggest the economy is overheating. Inflation data for April indicated further growth on domestic wages and consumer prices although they fell short of market expectations. Kaplan, who is not a voting member of the Federal Open Market Committee in 2018, said he expected the US economy to grow about 2.50 percent to 2.75 percent in 2018, underpinned by the biggest tax overhaul in 30 years enacted last December. He cautioned the tax boost would fade in 2019, slowing gross domestic product to 1.75 percent to 2.00 percent growth rate by 2020. With businesses expanding and the consumer sector in pretty good shape, Kaplan said the Federal Reserve will likely stay on track to raise key overnight borrowing costs at a gradual pace.
On the economy front, sales at US retailers rose in April for the second straight month, adding to evidence the economy has sped up again after a slower start to the year. Retail sales climbed 0.3% last month following an even larger gain in March than originally reported. March sales were revised to show a 0.8% increase instead of 0.6%. Retail sales also rose 0.3% last month if auto dealers and gasoline stations are omitted. The Empire State manufacturing index rose in May, to a reading of 20.1 from 15.8 in April. The new-orders index gained 7 points to 16, and the shipments index rose 1.6 points to a reading of 19.1. The prices paid index rose to its highest level in several years. Labor market indicators pointed to modest increase in employment and longer workweeks. The six-month outlook index rebounded partially to 31.1 in May after a plunge to 18.3 in April from 44.1 in March.
Meanwhile, builder confidence in the market for newly built single-family homes rose two points to a level of 70 in May, according to the National Association of Home Builders/Wells Fargo housing market index released. April's reading was downwardly revised a point to 68. Any number over 50 indicates that more builders view conditions as good than poor. The component for current sales conditions rose while those for buyer traffic and expectations in the next six months were unchanged.
The Dow Jones Industrial Average lost 193.00 points or 0.78 percent to 24,706.41, the Nasdaq dropped 59.688 points or 0.81 percent to 7,351.63, and the S&P 500 was down by 18.68 points or 0.68 percent to 2,711.45.