Wednesday Morning Wakeup

Following a week in which the stock market ended in positive ground, investors went back to selling over the first two sessions of the new week. Traders appeared to crave more solid economic news to keep the rally moving forward. The declines came despite better-than-anticipated economic reports. The markets slipped in reaction to the value of the U.S. Dollar retreating and the advancement of commodity prices.

The good news on Tuesday was provided by builders. Reports indicated that construction of new homes in May surged by the largest amount in three months, coming off April’s record-low reading of 454K units. May’s gain of 17.2%, to an annual rate of 532K units, came in well above the 500K pace economists were looking for. Building permits jumped as well, climbing 4% to an annual rate of 518k units.

Tuesday’s session also brought a report on wholesale prices, PPI, which increased at a slower-than-projected pace in May of 0.2%. The current reading was much lower than the 0.6% increase predicted. Excluding the volatile pricing of food and energy costs, the core inflation rate slipped 0.1% in May, the direct opposite of what analysts expected, an increase of 0.1%.

The leading factor in the drop in PPI was a 1.6% decrease in food costs. This was offset considerably, however, by a 2.9% increase in the cost of energy, including a nearly 14% jump in the cost of gasoline. Despite the nominal increase in the PPI, wholesale prices have receded 5% over the past year, the largest annual decline in nearly 60 years.

The final bit of economic news released on Tuesday came from the Federal Reserve. The government data showed that the nation’s industrial production retreated at a greater clip than anticipated in May. Industrial production slipped 1.1% for the month, retreating for the seventh consecutive month, following a 0.7% slide in April. Production within the mining industry fell 2.1% in May, while utility output dropped 1.4% and manufacturing production slipped 1%.

After a decrease in the cost of crude oil on Monday, the following session witnessed the price continue to creep lower and climb back under the $71 mark. In what appears to be an unprecedented streak, gas prices advanced for the 49th consecutive day on Tuesday, breaking a string of 48 straight days dating back to the 1970s. As it stands, the average price for a gallon of gasoline currently sits at $2.674, with prices now more 60% higher since the start of 2009.

As the first two sessions of the week drew to a close, the Dow Jones receded by 294.59 points, or 3.3%, collectively. That includes Monday’s loss of 187 points, its largest one-day drop since May 13, when it fell 184-plus points.

The broader market indicators followed suit with losses this week. Heading into Wednesday’s session, the S&P 500 was lower by 34.25 points, or 3.6%, and the tech-heavy NASDAQ slipped 62.62 points, or 3.4%, by the end of Tuesday’s session.

In the remaining sessions to follow this week, the markets could be influenced greatly by the next wave of government reports. On the docket are the CPI and Leading Indicator readings for May, as well as weekly data on Initial Claims and Crude Inventories.