Rising bond rates suffocated the recent rally in US equities, sending them down on Tuesday after a three-day holiday weekend.
What is going on?
At 32,788, the Dow Jones Industrial Average DJIA, -0.98% fell 425 points or 1.3 percent. Stocks on the S&P 500 SPX, -0.92 percent, were down 40 points or 1% at 4,118. Nasdaq Composite COMP, 0.94 percent down 81 points, or 0.7%, to 12,050.
The Dow Jones Industrial Average jumped 6.2 percent last week, ending a streak of eight consecutive weekly losses that had been the longest since 1932. Although it was only a hair away from entering a bear market earlier this month, the S&P 500 gained 6.6% last week, its most significant weekly gain since March 2020. The Nasdaq Composite, which also went into a bear market earlier this year, gained 6.8%.
Why are people buying?
The rebound from previous lows seemed to be faltering as the month ended. Market participants were expecting a rebound last week since the selloff that pushed S&P 500 to its precipice on May 19 had left the index overextended to the downside on multiple metrics, according to analysts.
Selling pressure in the consumer discretionary sector was as much as 34.3% lower than its 27-year norm, according to Sam Stovall, a chief investment strategist at CFRA. Sector selloffs ranged from a loss of 2.6% in consumer staples to a loss of 34.3% in consumer discretionary. It is the lowest level since April 2020 that the S&P 500 12-month ahead earnings-per-share expectations have fallen to 16.8 times price, a loss of 1.1 percent from its 20-plus-year average.
In his view, “these extremes signaled pretty loudly that the market was prepared for at least a short-term rebound,” Stovall said. “And then it snapped… Just how long this surge will last remains to be seen. We’re still doubtful that this rise will last.”
President Joe Biden and Federal Reserve Chair Jerome Powell will meet in the afternoon and discuss interest rate policy. A Wall Street Journal opinion piece by Vice President Joe Biden said that he would not try to influence the Federal Reserve’s choices.
A hawkish remark by Christopher Waller, a Fed governor, didn’t appear to boost the mood. As long as inflation continues to rise, Waller believes the Federal Reserve should raise interest rates by half a percentage point at a time. In April, the Fed’s favored inflation measure showed a core level of 4.9 percent.
“To gather information on the continuing strength of the labor market and the pace in price rises,” Waller stated about the May employment and CPI statistics. Both the CPI and the May employment data are scheduled to be released following Friday. After trading on Tuesday, Salesforce CRM, HP HPQ, and Victoria’s Secret VSCO are set to release their quarterly results.
As a result of the EU’s decision to prohibit Russian crude oil imports, oil futures surged CL.1, +3.28 percent, with US benchmark crude trading over $119 a barrel and approaching its highest level since early March, according to Reuters. In the wake of Shanghai’s decision to reopen its COVID shutdown, investors are taking note.
A $6.7 billion offer for Yamana Gold (NYSE:AUY) from Gold Fields Ltd. ZA: GFI saw the Canadian miner’s stock soar by 16 percent.
What else is going on?
As measured against a basket of six major competitors, the ICE U.S. Dollar Index DXY, +0.34 percent, climbed by a modest 0.3%. To trade over $31.700, Bitcoin BTCUSD, +0.37% gained 0.1 percent.
A 0.5 percent drop in the Stoxx Europe 600 SXXP and an increase in the London FTSE 100 UKX, +0.30 percent. China’s Shanghai Composite SHCOMP, +1.19% surged 1.2%, while Hong Kong’s Hang Seng Index HSI, +1.48% climbed 1.4%, and Japan’s Nikkei 225 NIK, +0.33% fell 0.3%.
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