NEW YORK (TheStreet) -- Tuesday's trading session was a near repeat performance of Monday's as benchmark indexes struggled to hold onto gains for much of the day before falling into the red by midafternoon.
Markets had been under pressure for most of the day as the U.S. dollar enjoyed a minor rebound and strong economic data supported a Federal Reserve rate hike sooner than later.
The S&P 500 fell 0.61%, the Dow Jones Industrial Average tumbled 0.57% and the Nasdaq slid 0.32%.
The Fed's removal of its "patient" language and recommitment to data dependence last week has introduced increased volatility to the market, explained one analyst.
"An increased focus on data dependence coupled with less forward guidance is consistent with the return of volatility for a market that has been subdued in recent quarters," said CRT Capital's David Ader.
The U.S. dollar rebounded from an earlier drop as higher inflation data gave the impression the Federal Reserve could move on rates sooner than expected. The greenback had fallen from 12-year highs last week after the Fed suggested a slower rate hike timeline.
Consumer prices climbed 0.2% in February, reversing a 0.7% decline a month earlier, the U.S. Bureau of Labor Statistics said Monday. The increase in the headline number was the first in four months and came in as expected. Core CPI, excluding energy and food items, rose 0.2%, double what economists were expecting.
The inflation increase was seen as encouragement to the Fed to pull the trigger on a rate hike sooner than expected.
"The Fed has to essentially respond to these increased indications of strength in the domestic market without upsetting international markets too much," said David Louton, Professor of Finance at Bryant University, in a call. "The Fed is walking a very tight line currently, as we saw last week. Just a stray comment and all kinds of turmoil."
West Texas Intermediate crude leveled off at $47.48 a barrel as the dollar gained. Crude prices were under pressure earlier on news that production in Saudi Arabia was close to an all-time high, pumping around 10 million barrels a day. Also hurting oil prices, China's industrial activity continued to slow to an 11-month low in March.
Energy companies were among the worst performers on markets. Dow components Chevron (CVX) - Get Report and Exxon Mobil (XOM) - Get Report pulled lower, while the Energy Select Sector SPDR ETF (XLE) - Get Report dropped 0.53%.
U.S. new home sales in February came in far higher than expected, despite the dampening effect of winter weather. Home sales climbed to their highest level since February 2008, up 7.8% month of month to an annual rate of 539,000. Economists had expected 460,000.
Tech names helped to save the Nasdaq from the worst of the day's trading. Netflix (NFLX) - Get Report spiked more than 3% after its price target was increased to $450 from $400 at Barclays. However, the firm remained wary maintaining an "'equal weight" rating and noting that margins remain depressed as the company expands aggressively and increases spending on content.
Facebook (FB) - Get Report shares were 1% higher after TheNew York Times said the social network is exploring ways to host media sites' content directly in its newsfeed. And Google (GOOGL) - Get Report shares were 2.2% higher after the company announced Morgan Stanley (MS) - Get Report Chief Financial Officer Ruth Porat would take over its top finance spot.