(Updates to 16:03 EDT)
U.S. equity markets closed sharply lower on Tuesday, joining their global counterparts in the monthly loss column as investors await crucial economic data and the Federal Reserve convenes for its two-day policy meeting.
Gold sank, the dollar rebounded and benchmark U.S. Treasury yields ticked higher after the U.S. Labor Department reported hotter-than-expected first-quarter employment cost growth, which is unlikely to alter the Fed's restrictive stance.
"The sell-off was triggered by the higher-than-expected employment cost index," said Jay Hatfield, portfolio manager at InfraCap in New York. "And investors are positioning ahead of what is likely to be a hawkish press conference following the Fed meeting."
All three major U.S. indexes recorded their first monthly percentage losses since October.
"We have reached new highs in the S&P this year, but there comes a time when a market needs to digest those gains," said Sam Stovall, chief investment strategist of CFRA Research in New York. "The old 'sell in May' adage might have come true a month early."
The Federal Reserve Open Market Committee gathers on Tuesday for its monetary policy meeting, which is expected to culminate on Wednesday with a decision to leave the Fed funds target rate in the 5.25% to 5.50% range.
The accompanying statement, as well as Fed Chair Jerome Powell's subsequent press conference, will be parsed for clues regarding the central bank's expected path forward with respect to interest rate cuts.
"We know the Fed is going to be hawkish, and there's going to be questions about rate increases," Hatfield added. "That will be the money answer, depending how much he pushes back on that."
First-quarter earnings season has passed its halfway point, with a host of high-profile results on tap this week, among them Amazon.com AMZN.O and Apple Inc AAPL.O .
Analysts now see aggregate S&P 500 first-quarter earnings growth of 6.0% year-on-year, up from the 5.1% estimate as of April 1, LSEG data showed.
The Dow Jones Industrial Average .DJI fell 570.17 points, or 1.49%, to 37,815.92. The S&P 500 .SPX lost 80.49 points, or 1.57%, at 5,035.68 and the Nasdaq Composite .IXIC dropped 325.26 points, or 2.04%, to 15,657.82.
European stocks ended lower as a raft of bleak earnings dampened investor sentiment due to upbeat economic data and the increased likelihood that the European Central Bank could cut interest rates in June.
The pan-European STOXX 600 index .STOXX lost 0.68% and MSCI's gauge of stocks across the globe .MIWD00000PUS shed 1.23%.
Emerging market stocks lost 0.61%. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS closed 0.41% lower, while Japan's Nikkei .N225 rose 1.24%.
The dollar, boosted by economic data, regained some strength against a basket of world currencies and the yen weakened against the greenback, paring gains in the aftermath of suspected currency intervention on the part of Japanese authorities on Monday.
The dollar index .DXY rose 0.62%, with the euro EUR= down 0.43% to $1.0673.
The Japanese yen JPY= weakened 0.89% versus the greenback at 157.75 per dollar, while sterling GBP= was last trading at $1.2497, down 0.51% on the day.
U.S. Treasury yields rose after the hotter-than-expected employment costs report as investors awaited the Fed decision.
Benchmark 10-year notes US10YT=RR fell 19/32 in price to yield 4.6902%, from 4.612% late on Monday.
The 30-year bond US30YT=RR fell 28/32 in price to yield 4.7945%, from 4.737% late on Monday.
Crude prices dropped on easing geopolitical tensions as Israel-Hamas peace talks moved forward and U.S. data showed healthy crude output and exports.
U.S. crude CLcv1 dropped 0.85% to settle at $81.93 per barrel, while Brent LCOcv1 settled at $87.86 per barrel, down 0.61% on the day.
Gold prices tumbled to a one-week low ahead of the Fed meeting, but remained on course for their third consecutive monthly gain.
Spot gold XAU= dropped 1.8% to $2,292.60 an ounce.
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