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Benchmarks suffered the second-consecutive loss on Tuesday as investors had a knee-jerk reaction to comments from two Federal Reserve policy makers regarding tapering the stimulus program next month. In absence of any major economic report, these comments dominated the mood. The S&P 500 logged its worst day since Jun 24. However, investors ignored some encouraging news coming from the other side of the pool that said Germany’s factory orders increased in June. All ten sectors of the S&P 500 industry groups ended lower with financial stocks losing the most.

For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article.    

The Dow Jones Industrial Average (DJI) lost 0.6% to close the day at 15,518.74. The S&P 500 decreased 0.6% to finish yesterday’s trading session at 1,697.37. The tech-laden Nasdaq Composite Index slipped 0.7% to end at 3,665.77. The fear-gauge CBOE Volatility Index (VIX) jumped 7.4% to settle at 12.72. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 5.5 billion shares, well below than 2013’s average of 6.36 billion shares. Declining stocks outnumbered the advancers. For 72% shares that declined, only 25% advanced.

Stocks have rallied this year primarily driven by the Federal Reserve’s bond buying program. The blue-chip index, S&P 500 and Nasdaq have jumped 18.4%, 19% and 21.4%, respectively, so far this year. However, markets declined yesterday after two Fed officials said that central bank may start trimming its massive bond buying program in the very next month if economy continues to improve. Atlanta Fed president Dennis Lockhart said the decision to taper bond buying program could be taken during any of the three remaining policy meetings this year. He added that he will keep a look at economic reports for “the next few weeks”.

Chicago Fed President Charles Evans said: “We are quite likely to reduce the flow of purchases rate starting later this year—I couldn't tell you exactly which month that will be—and it's likely to wind down over time in a couple or few stages”. He also said that central bank will keep the short-term interest rate near zero even after the bond buying program ends. It is expected to continue until unemployment rate falls below 6.5% and the Fed achieves that target of keeping inflation rate at 2%.

On the earnings front, Michael Kors Holdings Ltd’s (NYSE:KORS) fiscal first quarter earnings easily surpassed the Street’s estimates. Michael Kors’ profit jumped 82% boosted by higher revenues in all business segments. Michael Kors also increased this year’s guidance and is now expecting earnings per share in the range of $2.67 to $2.69, up from the previous estimate of $2.43 to $2.47. Shares jumped 3.7% yesterday.      

Shares of American Eagle Outfitters (NYSE:AEO) tumbled 12.0% yesterday after the company warned about its second quarter earnings. The company is expecting earnings per share of $0.10, well below the Street’s expectation of $0.21 per share. According to Thomson Reuters data, 418 companies of the S&P 500 companies have reported their quarterly results, among which 67.5% outpaced earnings estimates. Around 54% of these companies have reported revenues above the Street’s estimates.

On the international front, Germany factory orders increased in June. The Economy Ministry in Berlin said German factory orders climbed 3.8% in June from the previous month, beating the economist estimate of a gain of 1.0%. Factory orders were primarily boosted by increase in contracts for bulk items.

Financial stocks were the worst performers among the S&P 500 industry groups and the Financial Select Sector SPDR (XLF) lost nearly 1.0%. Shares such as Bank of America Corp (NYSE:BAC), Goldman Sachs Group Inc. (NYSE:GS), Wells Fargo & Co. (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc. (NYSE:C) slipped 1.1%, 2.1%, 0.7%, 1.1% and 2.6%, respectively.

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