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After moving sharply lower early in the session, stocks continue to see considerable weakness throughout the trading day on Tuesday. The Dow and the S&P 500 added to Monday’s losses, pulling back further off the record closing highs set last Thursday.

The major averages ended the session off their worst levels of the day but still firmly in the red. The Dow tumbled 396.61 points or 1.0 percent to 39,170.24, the Nasdaq slumped 156.38 points or 1.0 percent to 16,240.45 and the S&P 500 slid 37.96 points or 0.7 percent to 5,205.81.

The early sell-off on Wall Street partly reflected renewed uncertainty about the outlook for interest rates as traders digested recent U.S. economic data.

Last Friday’s closely watched inflation data combined with Monday’s stronger than expected manufacturing data have raised questions about whether the Federal Reserve will lower rates in June.

Treasury yields moved sharply higher in reaction to the data on Monday and saw further upside during today’s session, with the yield on the benchmark ten-year note reaching a four-month high.

While CME Group’s FedWatch Tool is currently still indicating 56.3 percent chance the Fed will cut rates by a quarter point in June, that is down from 63.8 percent a week ago.

Traders may also have taken the opportunity to cash in on some of the recent strength in the markets ahead of remarks by Fed Chair Jerome Powell on Wednesday and the release of the monthly jobs report on Friday.

On the U.S. economic front, the Commerce Department released a report showing a significant rebound in factory orders in the month of February.

The Commerce Department said factory orders surged by 1.4 percent in February after plunging by a revised 3.8 percent in January.

Economists had expected factory orders to jump by 1.0 percent compared to the 3.6 percent slump originally reported for the previous month.

Sector News

Networking stocks moved sharply lower over the course of the session, resulting in a 2.7 percent nosedive by the NYE Arca Networking Index.

Substantial weakness was also visible among housing stocks, with the Philadelphia Housing Sector Index plunging by 2.5 percent. The index pulled back further off last Thursday’s record closing high.

Airline stocks also showed a significant move to the downside on the day, dragging the NYSE Arca Airline Index down by 1.8 percent.

Healthcare, computer hardware and semiconductor stocks also saw considerable weakness, while energy stocks bucked the downtrend amid a sharp increase by the price of crude oil.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Tuesday. China’s Shanghai Composite Index edged down by 0.1 percent, while Japan’s Nikkei 225 Index inched up by 0.1 percent and Hong Kong’s Hang Seng Index surged by 2.4 percent.

Meanwhile, the major European markets all moved to the downside on the day. While the German DAX Index slumped by 1.1 percent, the French CAC 40 Index slid by 0.9 percent and the U.K.’s FTSE 100 Index dipped by 0.2 percent.

In the bond market, treasuries extended the sell-off seen in the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 3.6 basis points to a four-month closing high of 4.365 percent.

Looking Ahead

Trading on Wednesday may be impacted by reaction to remarks by Fed Chair Jerome Powell as well as reports on private sector employment and service sector activity.

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