U.S. stocks tumbled in the first session following the extended holiday break, closing off the lows of the day but still solidly in the red as flared-up political turmoil in Italy and Spain grabbed the geopolitical spotlight. Treasury yields fell, applying some pressure on financials, though the U.S. dollar continued to rally and consumer confidence moved closer to a 17-year high. Crude oil prices were lower and gold ticked slightly higher.

The Dow Jones Industrial Average (DJIA) dropped 392 points (1.6%) to 24,361, the S&P 500 Index fell 31 points (1.2%) to 2,690, and the NASDAQ Composite declined 37 points (0.5%) to 7,397. In moderately heavy volume, 941 million shares were traded on the NYSE and 2.1 billion shares changed hands on the NADAQ. WTI crude oil traded $1.15 lower to $66.73 per barrel and wholesale gasoline was down $0.03 at $2.15 per gallon. Elsewhere, the Bloomberg gold spot price was $1.59 higher at $1,300.63 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 94.84.

Consumer Confidence hits three-month high, home prices rise and regional manufacturing jumps

The Consumer Confidence Index rose to 128.0 in May, from April’s downwardly-revised 125.6, in line with the Bloomberg estimate. This was the highest level since February’s 17-year high, as the Present Situation Index and the Expectations Index of business conditions for the next six months both improved. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 26.6 from the 22.7 level posted in April.

The 20-city composite S&P Core Logic Case-Shiller Home Price Index showed a 6.8% year-over-year (y/y) gain in home prices in March, versus forecasts of a 6.5% rise. Month-over-month (m/m), home prices were up 0.5% on a seasonally adjusted basis for March, below expectations of a 0.8% gain.

Treasury yields retreated with the 10-year note solidly back below the 3.00% mark, while the U.S. dollar continued to move higher. Global trade uncertainty lingered, as U.S. and China relations remain a question, along with NAFTA negotiations, while geopolitical concerns continued as the highly-anticipated summit with North Korea, expected to happen next month, is in jeopardy due to differences regarding denuclearization. European political uncertainty flared up to exacerbate sentiment, with Italy grappling with the potential impact of a populist government, and as Spain’s Prime Minister Rajoy faces a no-confidence vote this week. Crude oil prices continued to garner attention amid a recent drop from a surge as of late, pressured by some bearish oil inventory data that has exacerbated supply concerns.

Diminished worries about an acceleration in the Fed’s rate hike campaign have contributed to the pullback in bond yields, though the economic and earnings fronts remain solid.

Schwab Center for Financial Research – Market Analysis Group

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