US close: Stocks finish lower on inflation data, hawkish Fed

US stocks finished lower on Tuesday after inflation data missed forecasts and two Federal Reserve policymakers indicated an interest rate hike in September is a possibility.

The Dow Jones Industrial Average fell 0.45% to 18,552.02 points, the S&P 500 decreased 0.55% to 2,178.15 points and the Nasdaq shed 0.66% to 5,227.11 points.

In contrast, oil prices gained on a weaker dollar, with West Texas Intermediate crude up 1.7% to $46.57 a barrel and Brent 1.7% firmer at $49.20.

The US consumer price index (CPI) rose 0.8% year-on-year in July, down from 1.0% the previous month, according to the Labor Department. Economists had forecast a 0.9% increase. The easing in inflation was driven by a 1.6% drop in the energy index.

Core inflation, which excludes volatile energy and food prices, slowed to 2.2% year-on-year growth in July from 2.3% in June, surprising analysts who had expected no change.

The dollar dropped against major currencies following the report, down 1.24% against the pound, 0.84% versus the euro and 0.97% against the yen.

Barclays Research said: “Domestic price pressures remain strong as slack in the economy has diminished, and we expect core services CPI to continue driving inflation higher.

“In addition, the direct drag from the 2014 decline in energy prices and dollar strength has abated, in our view. As a result we maintain our view that core CPI will continue to firm further this year, although the July report poses some downside risks to our forecast.”

While some economists said the worst-than-expected inflation data adds to bets the Federal Reserve will hold off on raising interest rates at its next meeting in September, two policymakers have said they wouldn’t write it off given the pick-up in US economic growth.

New York Federal Reserve president William Dudley told Fox Business News an interest rate hike might be on the table at the September meeting.

IG market analyst Joshua Mahony said: “Interestingly, on the day when the Fed’s Dudley has sought to raise market expectations of a rate rise in September, we have also seen the dollar lose ground across the board, with markets largely disregarding the notion that a hike will come next month.

“Of particular interest is the near two-month low of USDJPY, which flies in the face of recent highs for US indices, with the correlation between USDJPY and US stocks out of kilter of late.”

Separately, Atlanta Federal Reserve Bank President Dennis Lockhart said the US economy is likely strong enough for at least one interest rate increase before the end of the year, with two hikes a possibility. He added that he would “not rule out” a rate increase in September due to ongoing US job gains and "healthy" signs that inflation will move towards the Fed’s 2% target.

The Fed releases on Wednesday the minutes of its 26-27 July policy meeting, which may offer more clues on the timing of the next interest rate rise.

Meanwhile, data from the Commerce Department showed US housing starts rose past forecasts in July, climbing 2.1% in July to 1.21m compared to estimates for a 0.8% decline to 1.18m.

Building permits, on the other hand, dipped by 0.1% to 1.152m in July, missing forecasts for a 0.6% gain to1.160m.

Another report from the Federal Reserve showed industrial output rose 0.7% following a 0.4% gain in June, beating expectations of a 0.3% increase.

Manufacturing production climbed 0.5% in July, below estimates for a 0.2% increase and following a 0.3% increase in June.

On the corporate front, Dick’s Sporting Goods shares jumped after the company raised its full year forecast and reported better-than-expected second quarter results.

TJX Cos. slumped as it reported an increase in quarterly revenue but its full year guidance on earnings missed analysts’ estimates.

Elsewhere, data from the Office for National Statistics showed the UK CPI rose to 0.6% in July compared to the same month last year, up from the 0.5% in June that economists expected to be maintained.

Dow Jones - Risers

Intel Corp. (INTC) $35.21 0.86%
Boeing Co. (BA) $135.00 0.25%
Nike Inc. (NKE) $56.88 0.19%
Caterpillar Inc. (CAT) $84.29 0.17%
Exxon Mobil Corp. (XOM) $87.92 0.13%
Goldman Sachs Group Inc. (GS) $165.65 0.06%
JP Morgan Chase & Co. (JPM) $65.72 -0.02%
Apple Inc. (AAPL) $109.39 -0.08%
Visa Inc. (V) $80.81 -0.12%
Chevron Corp. (CVX) $102.62 -0.15%

Dow Jones - Fallers

Johnson & Johnson (JNJ) $120.33 -1.62%
Verizon Communications Inc. (VZ) $52.76 -1.59%
Microsoft Corp. (MSFT) $57.44 -1.17%
Travelers Company Inc. (TRV) $116.98 -1.16%
Coca-Cola Co. (KO) $43.85 -0.93%
Pfizer Inc. (PFE) $34.79 -0.91%
E.I. du Pont de Nemours and Co. (DD) $68.03 -0.89%
International Business Machines Corp. (IBM) $160.70 -0.73%
3M Co. (MMM) $179.25 -0.73%
Home Depot Inc. (HD) $136.23 -0.61%

S&P 500 - Risers

Chesapeake Energy Corp. (CHK) $5.91 7.45%
Cintas Corp. (CTAS) $112.99 5.19%
Praxair Inc. (PX) $121.27 2.75%
American Airlines Group (AAL) $36.75 2.45%
Marathon Petroleum Corporation (MPC) $42.13 2.23%
Apache Corp. (APA) $50.97 2.19%
Morgan Stanley (MS) $30.25 1.99%
Westrock Company (WRK) $44.86 1.95%
Marathon Oil Corp. (MRO) $15.17 1.81%
ConocoPhillips (COP) $42.86 1.61%

S&P 500 - Fallers

VeriSign Inc. (VRSN) $75.97 -7.14%
TJX Companies Inc. (TJX) $77.97 -5.80%
Activision Blizzard Inc. (ATVI) $39.31 -5.23%
Advance Auto Parts (AAP) $160.40 -4.39%
Lockheed Martin Corp. (LMT) $256.77 -3.65%
United States Steel Corp. (X) $21.61 -3.09%
Transocean Ltd. (RIG) $10.11 -3.07%
Kimco Realty Corp. (KIM) $29.57 -2.95%
Csra Inc. (CSRA) $25.38 -2.91%
Universal Health Services Inc. (UHS) $122.68 -2.87%

Nasdaq 100 - Risers

American Airlines Group (AAL) $36.75 2.45%
Seagate Technology Plc (STX) $32.46 1.44%
Intel Corp. (INTC) $35.21 0.86%
Priceline Group Inc (PCLN) $1,409.10 0.71%
NetApp Inc. (NTAP) $28.95 0.52%
Symantec Corp. (SYMC) $22.98 0.44%
Liberty Global plc Series A (LBTYA) $32.56 0.37%
Starbucks Corp. (SBUX) $55.37 0.22%
Baidu Inc. (BIDU) $173.30 0.20%
Skyworks Solutions Inc. (SWKS) $69.60 0.14%

Nasdaq 100 - Fallers

Activision Blizzard Inc. (ATVI) $39.31 -5.23%
Incyte Corp. (INCY) $77.86 -3.35%
Vertex Pharmaceuticals Inc. (VRTX) $100.00 -2.42%
Regeneron Pharmaceuticals Inc. (REGN) $413.64 -2.18%
Illumina Inc. (ILMN) $169.65 -2.14%
Celgene Corp. (CELG) $112.17 -2.14%
Ross Stores Inc. (ROST) $61.87 -2.14%
Norwegian Cruise Line Holdings Ltd. - Ordinary Shares (NCLH) $37.63 -1.93%
Electronic Arts Inc. (EA) $78.05 -1.80%
Broadcom Limited (AVGO) $172.40 -1.79%