After spending most of the session in positive territory, and despite a significant boost following the afternoon release of the Fed minutes that showed confidence in improving growth, U.S. equities tumbled below the flatline to finish lower. News on the economic front diverged, as upside surprises in reads on manufacturing and services sector activity were countered by an unexpected decline in existing home sales. Treasury yields and the U.S. dollar extended gains, while crude oil prices were mixed and gold was lower.

The Dow Jones Industrial Average (DJIA) declined 167 points (0.7%) to 24,798, the S&P 500 Index fell 15 points (0.6%) to 2,701, and the NASDAQ Composite lost 16 points (0.2%) to 7,218. In moderate volume, 889 million shares were traded on the NYSE and 1.9 billion shares changed hands on the NASDAQ. WTI crude oil ticked $0.11 lower to $61.68 per barrel and wholesale gasoline added $0.01 to $1.93 per gallon. Elsewhere, the Bloomberg gold spot price decreased $4.75 to $1,324.44 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 90.03.

Existing-home sales in January declined 3.2% month-over-month (m/m) to a 5.38 million annual rate, compared to the Bloomberg forecast of a 5.60 million pace, and versus December’s downwardly revised 5.56 million rate. Sales of single-family homes declined 3.8% m/m and purchases of multi-family structures rose 1.6%, with both down y/y. The median existing-home price was 5.8% above year ago levels at $240,500. Unsold inventory came in at a 3.4-months pace at the current sales rate, up from last month’s record low. Inventory of homes for sale rose m/m but was down 9.5% y/y. Sales were lower m/m in all regions. Existing home sales account for the majority of the housing sales market.

The National Association of Realtors (NAR) said the utter lack of sufficient housing supply and its influence on higher home prices muted overall sales activity in much of the U.S. last month, though buyer traffic was stronger than the beginning of last year. NAR added that it’s very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth. Since existing home sales are based on contract closings instead of signings, pressure on affordability may be set to intensify due to the recent run in interest rates that are likely not reflected in the January report.

The minutes from the Federal Reserve’s January monetary policy meeting, in which it kept its stance unchanged, showed the Committee grew more positive on its economic outlook, while also increasingly confident that it can achieve its inflation target. The Committee said that it “anticipated that the rate of economic growth in 2018 would exceed their estimates of its sustainable longer-run pace and that labor market conditions would strengthen further,” adding that a number of members “indicated that they had marked up their forecasts for economic growth in the near term relative to those made for the December meeting.” As such, “a majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate.”

Treasuries finished lower, as the yield on the 2-year note rose 2 bps to 2.27%, the yield on the 10-year note gained 4 bps to 2.94%, and the 30-year bond rate jumped 7 bps to 3.22%.

Schwab Center for Financial Research – Market Analysis Group

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