U.S. stocks traded sharply lower on Wednesday as investors continued to eye the timing of a rate hike and weigh the impact of the dollar on the coming earnings season.
“Durable goods were pretty awful,” said Peter Boockvar, chief market analyst at The Lindsey Group. Also getting hit are “biotechs, the poster boy for stock market speculation. They’ve had an extraordinary run.”
The iShares Nasdaq Biotechnology ETF (IBB), which is up 14 percent for the year, fell more than 3 percent in midday trade, bringing the Nasdaq Composite down more than 1.5 percent.
“We broke the morning lows. They were retesting the morning lows for the second time. If they broke they could snowball and that’s what happened,” said Art Cashin, director of floor operations at UBS.
The morning lows were 17,928 on the Dow and 2,085 on the S&P 500.
The Dow Jones industrial average quickly lost more than 150 points in late morning trade as all the major indices declined, giving back gains from the rally after last week’s Fed announcement.
“With the indices still at high levels most of the selling (last week) was in the blue chips. The rest of the market avoided any real significant drop,” said Peter Cardillo, chief market economist at Rockwell Global Capital. “It might be their turn as portfolio managers lock in profit.”
February’s durable goods orders fell 1.4 percent, missing expectations of a modest pick-up. The core non-defense capital goods orders excluding aircraft also fell 1.4 percent last month. The report marked the sixth straight month of declines, likely weighed down by the strong dollar and weak global demand.
The weak report means “growth in the first quarter will be marked down again and it’s growing very possible that we see a sub-1 percent print,” Boockvar said in a note. “The S&P futures didn’t blink this morning on today’s weak data because it’s still only focused on what it means for Fed policy rather than whether Fed policy has been effective in helping the economy.”
Futures pointed to a higher open and stocks initially traded mildly higher before giving back gains.
Stocks “kind of shrugged off the durable goods order a little quickly I think,” said JJ Kinahan, chief strategist at TD Ameritrade. However, “The Fed not raising rates looks better and better because the supporting numbers outside employment continue to be weak. The market is still focused on the dollar and interest rates.”
He noted that closing above 2,100 on the S&P 500 would be a bullish indicator.
Aggressive buying last week around the Fed announcement has “people coming in and trying to rationalize” this week,” said Art Hogan, chief market strategist at Wunderlich Securities.
“I think it’s all about the Fed, it’s all about the dollar and earnings season soon to come up,” said Nick Raich, CEO of The Earnings Scout.
The U.S. dollar edged about half a percent lower against major world currencies but still held onto gains of more than 7 percent year-to-date. Equities have tended to rise with a weaker dollar and decline with dollar gains.
Read More Dollar dings stock market confidence
Last earnings season, many companies already blamed the strong dollar for weaker performance during and continued strength in the dollar have resulted in very low to slightly negative expectations for first-quarter results in April.
“Investors are trying to get their earnings estimates closer to reality and that’s causing some damage here,” said Maris Ogg, president at Tower Bridge Advisors.
U.S. stocks closed lower on Tuesday, with the Dow off 104 points. As equities fell bond yields also declined as investors piled into the safe-haven trade.
The U.S. 10-year Treasury yield edged higher on Wednesday to 1.88 percent after trading near 1.86 percent earlier.
“There’s a lot of tug of war between the stocks and bonds markets and currency and that’s causing confusion in the market until earnings,” Raich said.
Weekly mortgage applications for the week ended March 20 rose 9.5 percent from the previous week to the highest level since January, the Mortgage Bankers Association said on Wednesday.
In the continuing post-Fed statement remarks by Fed officials, Chicago Fed President Charles Evans said early on Wednesday that policymakers need to be “confident” that inflation is heading towards 2 percent before raising rates. Otherwise, there is “no compelling reason” to hike interest rates, he said.
“I think over the last couple weeks the Fed comments … keep getting reinterpreted by the Fed speakers (which are) more hawkish,” Ogg said. “I think it probably confirms we get a rate hike this year and that’s healthy.”
“The dollar is probably the primary thing working on earnings, more so than oil,” she said.
Crude oil inventories showed a gain of 8.17 million barrels last week, more than expected. Crude held above $48 a barrel and Brent traded near $56 a barrel.
Kraft Foods surged more than 30 percent to open at an all-time high following morning news that the firm will merge with Heinz to form Kraft Heinz, with Heinz shareholders owning 51 percent of the combined company and Kraft shareholders owning 49 percent. Kraft shareholders will also receive a special dividend of $16.50 per share.
American Express CEO Ken Chenault outlines the financial services giant’s future plans in a presentation to investors today. American Express has faced bumpy times in recent months, including the loss of its long-standing partnership with Costco.
Facebook kicks off its annual developer conference today, with CEO Mark Zuckerberg among the speakers. The conference will run for two days instead of one for the first time.
European equities traded lower on Wednesday, following a lackluster lead from Asia and Wall Street, despite better-than-expected data from Germany.
Elsewhere, Greece risks running out of cash by April 20 unless it secures fresh aid, a source familiar with the matter told Reuters on Tuesday, leaving it little time to convince skeptical creditors it is committed to economic reform.
The S&P 500 fell 14 points, or 0.66 percent, to 2,077, with information technology the greatest of eight declining sectors and energy and consumer staples the only advancers.
The Nasdaq fell 68 points, or 1.37 percent, to 4,926.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded above 14.
Two shares declined for every advancer on the New York Stock Exchange, with an exchange volume of 279 million and a composite volume of nearly 1.4 billion a little after noon.
Crude oil futures gained 65 cents, to $48.14 a barrel on the New York Mercantile Exchange. Gold futures rose $5.40, or 0.45 percent, to $1,196.80 an ounce in morning trade.
—CNBC’s Patti Domm and Peter Schacknow contributed to this report.
On tap this week:
Earnings: Paychex, Apollo Education Group, Yingli Green Energy, Red Hat, Five Below, Worthington Industries
1:00 pm: $35 billion five-year note auction
Earnings: ConAgra, Accenture, Lululemon Athletica, Gamestop,Restoration Hardware, Scholastic, Commercial Metals
8:30 am: Initial claims
9:45 am: Services PMI
1:00 pm: $29 billion seven-year note auction
6:30 am: Fed Vice Chairman Fischer speaks in Germany
8:30 am: Real GDP (Q4 third)
10:00 am: Consumer sentiment
10:00 am: Atlanta Fed President Dennis Lockhart in Detroit
3:45 pm: Fed Chair Janet Yellen on monetary policy in San Francisco, Q&A