US open: Dow plunges almost 200 points as Fed-driven volatility persists

US stocks plunged early on Tuesday and looked set to wipe out the previous session’s gains.

Shortly after 1500 BST, the Dow Jones Industrial Average was down 197 points, while the S&P 500 and the Nasdaq were 22 and 57 points lower respectively.

Housing data in line with expectations

According to the Federal Housing Finance Agency, prices in the US rose 0.6% month-on-month in July, compared with a 0.2% increase in the previous month and with the 0.4% hike analysts had expected.

The increase took the year-on-year gain to 5.8%, the report added.

Fed remains in focus

Investors continued to look for clues over the timing of a first interest rates hike, after the Federal Reserve’s decision to sit tight sparked a fresh bout of volatility at the end of last week.

However, speaking on Monday, Richmond Fed president Jeffrey Lacker and St Louis Fed president James Bullard said the Fed had met many of its objectives and hinted the US central bank could raise rates as early as the next two months.

With the FOMC meeting and Greek elections both resolving in a positive manner for financial markets and global stability, it would make sense that we saw some form of relief rally in response,” said IG’s market analyst Joshua Mahony.

“However, the weakness seen since Thursday's Federal Reserve decision is highlighting a high possibility that we are due to embark on yet another major selloff in global indices.”

In corporate news, healthcare stocks are likely to be in focus after Democratic presidential candidate Hillary Clinton tweeted the government needed to prevent specialty drug makers from inflating prices.

General Mills shares declined 0.55%, even though the maker of Cheerios and Hamburger Helper reported quarterly profit jumped more than expected.

Darden Restaurants lifted its outlook for the year and reported better than-expected revenues but shares fell 1.32%, while Goldman Sachs’ shed 1.91% after Chief Executive Lloyd Blankfein said he had lymphoma.

CarMax Inc. slumped 6.96%, despite posting a better-than-expected 11% increase in profit for its August quarter, as sales missed estimates.

Elsewhere, Asian markets closed mostly higher, while European stocks fell, after automotive shares were dragged lower by the Volkswagen scandal.

The dollar declined 0.36% against the yen but gained 0.44% and 0.71% against the euro and the pound respectively, while gold futures slid 0.94% to $1,122.20.

Oil prices fell sharply, with West Texas Intermediate losing 2.94% to $45.62 a barrel, while Brent dropped 2.26% to $47.84 a barrel.

“The Fed inaction last week was yet another boot in the stomach for commodity related companies as spectre of lower global growth and its effect on demand for basic materials is still spooking investors,” said Brenda Kelly, head analyst at London Capital Group.