The stock market ended the Tuesday session on a sharply lower note following a daylong retreat that was paced by the Nasdaq Composite (-1.6%). For its part, the S&P 500 lost 1.2% with all ten sectors ending in the red.

 

The Tuesday selloff in U.S. equities followed an overnight session that featured a 4.1% drop in China's Shanghai Composite after some equity brokers increased their margin requirements, which led to forced selling. Furthermore, markets across Europe also struggled with Germany's DAX diving 2.5% amid spiking yields. To that point, Germany's 10-yr bund yield surged 13 basis points to 0.52% after hovering near 0.16% as recently as last week while Italy's 10-yr yield soared 34 basis points to 1.83%.

 

Rising interest rates were not unique to Europe as the U.S. 10-yr note registered its sixth consecutive decline, sending its yield higher by three basis points to 2.17%. The benchmark yield hit its highest level since early March and spent the day near its 200-day moving average, representing the first appearance near that level in more than a year.

 

To be sure, U.S. and European yields remain at depressed levels, but that masks the sharp pace at which rates have been increasing as of late. In turn, the sharp rally in yields has made equities less attractive versus Treasuries, which was on full display today with the rate-sensitive utilities sector (-2.3%) leading the stock market lower. Including the decline, the utilities sector is down 7.4% for the year.

 

Other countercyclical groups ended a bit closer to their flat lines with the health care sector (-1.2%) settling in-line with the broader market even as biotechnology displayed relative weakness. The iShares Nasdaq Biotechnology ETF (IBB 338.00, -7.19) fell 2.1%, distancing itself from the 50-day moving average (349.00), which provided resistance yesterday.

 

Biotechnology contributed to the underperformance of the Nasdaq while the technology sector (-1.6%) also pressured the index. Large cap names like Apple (AAPL 125.80, -2.90) and Google (GOOGL 543.04, -9.80) both lost near 2.0% while Microsoft (MSFT 47.60, -0.64) climbed off its low after Bloomberg reported the company is interested in Salesforce.com (CRM 72.75, +1.15). Microsoft ended lower by 1.3% while Salesforce.com gained 1.6%.

 

Similar to technology, the industrial sector (-1.3%) underperformed while consumer discretionary (-1.0%), financials (-0.8%), energy (-1.1%), and materials (-1.1%) ended just ahead of the S&P 500.

 

Notably, the energy sector spent the bulk of the day in positive territory thanks to crude oil, which rose 2.5% to $60.38/bbl., making its first appearance above $60/bbl since December.

 

Today's participation was ahead of recent averages with more than 770 million shares changing hands at the NYSE floor.

 

Economic data was limited to Trade Balance and ISM Services:

 

The U.S. trade deficit widened to $51.40 billion in March from an upwardly revised $35.90 billion (from $35.40 billion) in February while the Briefing.com consensus expected an increase to $40.00 billion 

The BEA assumed a March trade deficit of roughly $48.50 billion in the advance Q1 2015 GDP report, but the actual deficit was much larger than expected and will likely lead to a downward revision to GDP growth 

The goods deficit increased to $70.60 billion in March from $55.70 billion, a gain of $14.90 billion, while the services surplus declined by $600 million to $19.20 billion in March 

The spike in the trade deficit shouldn't be too concerning, considering the West Coast port strike caused a pileup of containerships that needed to be unloaded. As dockworkers returned, imports that normally would have come in February were unloaded in March

The ISM Non-manufacturing Index increased to 57.8 in April from 56.5 in March while the Briefing.com consensus expected a decrease to 56.3 

Production activities improved as the related index increased to 61.6 in April from 57.5 in March

Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET while April ADP Employment Change (Briefing.com consensus 189K) and Q1 Productivity/Unit Labor Cost Data will be released at 8:15 ET and 8:30 ET, respectively.

 

Nasdaq Composite +4.3% YTD 

S&P 500 +1.5% YTD 

Russell 2000 +1.0% YTD 

Dow Jones Industrial Average +0.6% YTD