Tuesday proved to be a challenge for the stock market as rising interest rates took over as a market driver. They kind of ran things off the smooth road the stock market had been on, too. The S&P 500 declined 0.7% while the Dow and Nasdaq Composite both dropped 0.8%.
The focal point was the 10-yr note yield, which hit its highest level (3.09%) since 2011, yet Treasury yields rose across the curve.
The 2-yr note yield climbed to 2.58%, yet the gist of the competitive matter for stocks is that investors don't have to go that far out on the curve to get a risk-free return that exceeds the dividend yield of the S&P 500 (2.03%). They can accomplish that in a 6-month T-bill, which is yielding 2.08%.
The higher rates led to some notable strength in the dollar, which has carried over this morning.
Aside from interest rates, the stock market also had to contend with reports that a renegotiated NAFTA deal was unlikely to come to pass before House Speaker Ryan's May 17 deadline and word that North Korea suspended talks with South Korea because it saw joint military exercises between the U.S. and South Korea as a "provocation."
Additional reports have also suggested that North Korea could ultimately back out of the planned June 12 summit with President Trump in Singapore if there is a U.S. demand for North Korea to unilaterally abandon its nuclear program.
Understandably, those headlines, along with rising rates, helped rein in some of the bullish enthusiasm seen of late. Still, one was left to wonder if Tuesday's pullback would have happened anyway if those factors weren't part of the equation.
The S&P 500 had climbed nearly 6.0% off its May 3 low, which is to say it was vulnerable to a pullback from a short-term overbought condition. The recognition that the Russell 2000 was unchanged on Tuesday validated the notion that there wasn't any panicky selling on Tuesday despite the shifting headlines.
Similarly, there hasn't been momentous follow through this morning.
The S&P futures are down four points, the Nasdaq 100 futures are down four points, and the Dow Jones Industrial Average futures are down 36 points.
There was little reaction to a mixed Housing Starts and Building Permits Report for April.
Starts declined 3.7% month-over-month to a seasonally adjusted annual rate of 1.287 million (Briefing.com consensus 1.325 million) while permits fell 1.8% to a seasonally adjusted annual rate of 1.352 million (Briefing.com consensus 1.350 million).
The key takeaway from the report is that single-family activity remained fairly muted. Permits for single-family homes rose 0.9% while single-family starts increased just 0.1%, with month-over-month declines registered in every region except the South (+17.2%).
Bad weather will get some blame for the torpid activity overall, yet nothing in this report suggests prospective homeowners can expect supply-driven price relief in the near future.
The Industrial Production and Capacity Utilization Report for April will be released at 9:15 a.m. ET.
In the meantime, market participants will be engaged with other headlines like Macy's (M) impressive earnings report, Japan's weaker than expected Q1 GDP growth, the IEA lowering its 2018 oil demand growth forecast, and rumblings out of Italy that there is a potential formation of a coalition government that might push for debt forgiveness and a re-write of EU treaties.