The major averages ended Tuesday on a lower note, erasing yesterday's gains. Today's trade featured a hotter-than-expected reading of April CPI (+0.4%; Briefing.com consensus +0.3%), hawkish commentary from FOMC members, a breach of the 50-day simple moving average (2056.90) in the S&P 500 (-0.9%), and the underperformance of consumer discretionary (-1.2%), health care (-1.1%), and technology (-1.1%). The Nasdaq Composite (-1.3%) ended behind both the Dow Jones Industrial Average (-1.0%) and the benchmark index (-0.9%).

Today's session began on a lower note as investors looked to the possible rate hike implications stemming from a hotter-than-expected reading of inflation in April. Meanwhile, Home Depot (HD 132.00, -3.34) came under pressure despite reporting above-consensus quarterly results. Additionally, the market maintained a negative bias after disclosures that George Soros placed bearish bets on the broader market by doubling his put position on the SPDR S&P 500 ETF (SPY 204.85, -1.92) and boosting his holdings in gold.

The S&P 500 (-0.9%) tested and briefly defended support near its 50-day simple moving average (2056.90) in the late morning, but was unable to do so again when that level was re-tested in the afternoon. As a result, the major averages extended their losses through the final hour. Nine sectors ended in the red with consumer staples (-1.9%), utilities (-1.7%), consumer discretionary (-1.2%), and health care (-1.1%) rounding out the leaderboard.

In the consumer staples sector (-1.9%), Kraft Heinz (KHC 82.16, -3.71) displayed relative weakness, losing 4.3%. Meanwhile, Hormel Foods (HRL 38.80, -1.44) ended lower by 3.6% ahead of tomorrow morning's earnings report. The broader sector trimmed its May gain to 0.3%, trailing only technology (-1.1%; month-to-date +0.4%) over that time.

Drug manufacturers displayed relative weakness in the health care space (-1.1%) as the sub-group moved lower in sympathy with AbbVie (ABBV 60.25, -2.20). The company fell 3.5% after receiving a negative ruling regarding its patent on a dosing regimen involving its rheumatoid arthritis medication. Conversely, Valeant Pharmaceuticals (VRX 29.08, +2.03) gained 7.5% after Citron's Andrew Left confirmed that he has opened a long position in the stock.

In the consumer discretionary space (-1.2%), Home Depot declined 2.5% despite topping analysts' estimates for the quarter. Fellow home improvement name Lowe's (LOW 76.07, -0.93) slipped 1.2% ahead of tomorrow morning's quarterly report.

Interest rate-sensitive real estate investment trusts (REITs) underperformed in the financial sector (-0.7%). The sub-group was pressured by the hotter-than-expected CPI reading and hawkish commentary from FOMC members. San Francisco Fed President Williams, Atlanta Fed President Lockhart, and Dallas Fed President Kaplan each said that an interest rate hike may be warranted sooner than the market currently anticipates one. For the June Fed meeting, the likelihood of a rate increase, as measured by the fed funds futures market, jumped to 15.0% from yesterday's 3.8% estimate.

The U.S. Dollar Index (94.52, -0.01) ended slightly lower as the euro and the yen ended flat against the greenback. The dollar/yen pair finished higher by 0.1% at 109.09 while the euro ended at 1.1316 against the dollar. Separately, pound sterling gained 0.4% against the dollar (1.4462).

The Treasury complex ended on a mixed note with the yield on the 10-yr note ending higher by one basis point at 1.76%.

Today's participation was above the recent averages as more than 1.02 billion shares changed hands on the NYSE floor.

Today's economic data included April Core CPI, April Housing Starts, April Building Permits, April Industrial Production, and April Capacity Utilization:

• The Consumer Price Index (CPI) for April produced a headline surprise, with total CPI rising 0.4% month-over-month (Briefing.com consensus +0.3%) and core CPI, which excludes food and energy, increasing 0.2% as expected.
  • The seasonally adjusted all items increase was broad-based, with the indexes for food, energy, and all items less food and energy rising in April.
  • The move, though, was powered by a 3.4% increase in the index for energy, which featured an 8.1% jump in the gasoline index.
  • A 0.3% increase in the shelter index and a 0.3% increase in the medical care services index were big drivers of the 0.2% increase in core CPI; however, those increases were mitigated somewhat by a 0.3% decline in the indexes for new vehicles, used cars and trucks, and apparel.
  • Over the last 12 months, CPI is up 1.1% on an unadjusted basis versus 0.9% in March. Core CPI is up 2.1% versus a 2.2% increase seen in March.
• It's possible the Fed could use the uptrend in CPI as a basis for raising the fed funds rate in June, although we suspect the fed funds futures market still isn't going to be buying into that notion.
• Housing starts increased 6.6% month-over-month to a seasonally adjusted annual rate of 1.172 million units (Briefing.com consensus 1.135 mln). The starts rate for March was revised up to 1.099 million from 1.089 million.
• Building permits increased 3.6% to a seasonally adjusted annual rate of 1.116 million (Briefing.com consensus 1.130 mln). Permits for March were revised down to 1.077 million from 1.086 million.
  • Total housing starts are 1.7% below the April 2015 rate while total building permits are 5.3% below the April 2015 estimate.
  • Single-family starts increased 3.3% in April to 778,000, led by a 12.8% gain in the Midwest and a 9.0% increase in the South. Both the Northeast (-1.8%) and the West (-14.1%) saw a drop in single-family starts.
  • The rise in permits was driven by an 8.0% increase in permits for multi-family units, although permits for single-family units increased 1.5%.
  • The number of homes under construction increased to 999,000 from 994,000 in March. This will be a positive input for Q2 GDP forecasts.
• After a string of largely disappointing data, the Industrial Production report for April proved to be a positive surprise as production increased at a faster than expected rate of 0.7% (Briefing.com consensus 0.2%).
• Capacity utilization also surprised to the upside, coming in at 75.4% (Briefing.com consensus 75.0%).
  • The April reading represented the first increase in three months while the previous month's reading was revised down to -0.9% from -0.6%. On a year-over-year basis, industrial production is down 1.1%.
  • Most notably, the utilities index spiked 5.8% while the final products index increased 1.0% on the back of a 1.2% growth in consumer goods.
  • The only category that registered a decline in April was mining. The mining index fell 2.3% and is now down 13.4% year-over-year. The decline in mining was not enough to offset the spike in utilities, leading to a 0.3% uptick in manufacturing output.
  • Looking at capacity utilization, total industry capacity grew 1.0% year-over-year with utilities showing the largest sequential increase (up 420 basis points to 78.6%). Mining capacity utilization declined to 72.5% from 74.0%, which represents a new record low.

Tomorrow's economic data will be limited to the 7:00 ET release of the weekly MBA Mortgage Index; however, the the Federal Open Market Committee will release the minutes from the April 27 meeting at 14:00 ET.

• Nasdaq Composite -5.8% YTD
• Russell 2000 -3.0% YTD
• S&P 500 +0.2% YTD
• Dow Jones +0.6% YTD