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The markets skidded into the red on Tuesday as worries about when the Federal Reserve will begin its departure from bond buying boiled back to the surface.
According to preliminary calculations, the Dow Jones Industrial Average fell 77 points, or 0.5%, to 15177, the S&P 500 dipped 9.1 point, or 0.55%, to 1632 and the Nasdaq Composite skidded 20.1 points, or 0.58%, to 3445.
Wall Street kicked off the month on a high note Monday, with the markets rallying on hopes a patch of weak manufacturing data will keep the Federal Reserve from trimming down its bond-buying program for the moment. However, that sentiment quickly soured Tuesday.
Kansas City Fed chief Esther George said in prepared remarks that the central bank needs to be very careful about the unintended consequences of its easing program and should be aware of the perils of buying $85 billion in bonds a month.
"While monetary policy affects inflation and financial stability and influences employment, it cannot singlehandedly fix today’s high unemployment," she said in prepared remarks. "History suggests that waiting too long to acknowledge the economy’s progress and prepare markets for more-normal policy settings carries no less risk than tightening too soon."
Losses on Tuesday were concentrated in economically-sensitive sectors, such as energy, industrials and consumer discretionary stocks. Meanwhile, volatility, as tracked by the CBOE's VIX, jumped 3.7%.
Also on the economic front, the Commerce Department said the U.S. trade deficit increased to $40.3 billion in April from a downwardly-revised $37.1 billion in March. Economists were expecting the deficit to increase to $41 billion. Exports for the month climbed 1.2%, while imports jumped 2.4%. While the report is a lagging indicator, it figures directly into second-quarter gross domestic product. The bigger the deficit, the more it detracts from GDP.
On Wednesday, traders will get the first glimpse at how many jobs the private sector added in May from payroll processor ADP. Then, on Friday, the Labor Department releases the all-important monthly jobs report. The economy is expected to have tacked on 170,000 jobs for the month, leaving the unemployment rate steady at 7.5%.
In corporate news, Salesforce.com (NYSE:CRM) said it is buying ExactTarget (NYSE:ET) in a deal valued at $2.5 billion. General Motors (NYSE:GM) will replace H.J. Heinz (NYSE:HNZ) on the S&P 500 and S&P 100 indices. American International Group (NYSE:AIG) will take Baker Hughes' (NYSE:BHI) place on the S&P 100 index. The oilfield servicing company will hold its spot on the S&P 500.
Oil prices were in the red. The benchmark U.S. crude oil contract fell 54 cents, or 0.58%, to $92.92 a barrel. Wholesale New York Harbor gasoline rose 0.29% to $2.794 a gallon. Gold slumped $14.20, or 1%, to $1,398 a troy ounce.
The Euro Stoxx 50 climbed 0.48% to 2761, the English FTSE 100 gained 0.66% to 6568 and the German DAX edged up 0.33% to 8313.
In Asia, the Japanese Nikkei 225 surged 2.1% to 13534 and the Chinese Hang Seng inched higher by 0.01% to 22286.