Stocks continued their nascent trend lower Tuesday, on pace with that mysterious lightning bolt that struck the new French President's airplane on his trip to Germany. Likewise, fiery speak and troubling polls out of Greece are increasingly pointing toward a rebellious new government taking shape under the ominous name of Syriza. Thus, it's befitting that the market took another dive Tuesday, with the SPDR Dow Jones Industrial Average (NYSE: DIA) off 0.6%, the SPDR S&P 500 (NYSE: SPY) down 0.8% and the PowerShares QQQ (Nasdaq: QQQ) retracting 0.3%.
The early market was spurred higher by a gain in the Empire State Manufacturing Survey produced by the Federal Reserve Bank of New York. The bank's General Business Conditions Index gained to a mark of 17.1, up from 6.6 in April. The reading was also well above the consensus of economists surveyed by Bloomberg, who forecast an increase to 10.0 - though we took a closer look at the New York area manufacturing report earlier Tuesday and found signs of European infection.
Released at the same time in the premarket Tuesday, Retail Sales came in soft for the month of April. Sales only inched 0.1% higher, in line with the economists' consensus at Bloomberg. However, when excluding auto sales and autos and gasoline sales, gains of 0.1% fell short of the economists' views for 0.2% and 0.3%, respectively. That didn't stop consumer discretionary or retail stocks from riding higher through the day, though each group retraced territory by the close. The SPDR S&P Retail (NYSE: XRT) closed higher by 0.2% and the Consumer Discretionary Select Sector SPDR (NYSE: XLY) dipped into the red, down 0.2%.
Many retailers were reporting earnings and traded in reaction to their data, with Home Depot (NYSE: HD) down 2.4%. Saks (NYSE: SKS) fell at the open on a revenue disappointment, but recovered ground quickly, aided by its conference call. J.C. Penney (NYSE: JCP) reported after the close, and its shares were down more than 10% in the aftermarket. Retail winners were led by TJX Companies (NYSE: TJX), which gained 6.9% on its EPS triumph (see TJX earnings call transcript).
Homebuilders were on the move Tuesday too, with the SPDR S&P Homebuilders (NYSE: XHB) gaining 0.6%. The National Association of Homebuilders (NAHB) published its Housing Market Index at 10:00 AM, and the data showed builder confidence gains in May. The shares of Toll Brothers (NYSE: TOL), KB Home (NYSE: KBH), Ryland Group (NYSE: RYL), PulteGroup (NYSE: PHM) and MDC Holdings (NYSE: MDC) were up between 1% and 3%.
Business Inventories were reported up only 0.3% against the economists' consensus of 0.4%, but the data counted as a positive anyway because "business sales" rose 0.6% for the reported month of March. Treasury International Capital (TIC) data showed a net increase in demand for long-term U.S. securities, with a net inflow of $36.2 billion in March, versus $10.1 billion in February.
The main driver for stocks Tuesday was the same one which will guide them into June: the unraveling of Greece and the eurozone. Unable to form a government, Greeks will now return to the polls in June. Unfortunately for the standing plan, it appears the anti-austerity Syriza Party could win the second time around, and the leadership of the party plans to tear up standing agreements with the troika of the IMF, EU and ECB. The German Finance Minister today reminded the world that the election therefore will determine if Greece remains in the eurozone. A Greece that is unwilling to bend means Spanish, Portuguese and Italian bond yields should find pressure, which could break the eurozone completely. For this reason, the euro dropped to a four-month low and European stocks collapsed. The EURO STOXX 50 fell 1%, and the Global X FTSE Greece 20 ETF (NYSE: GREK) fell another 4.6%. Perhaps most frightening, the iShares MSCI Italy Index (NYSE: EWI) dropped 3.6%.