A tumultuous May for markets ended almost exactly where it began for equities.
A tumultuous May for markets ended almost exactly where it began for equities, with a late-trade decline on Tuesday dropping the S&P 500 less than a point above its level of il a month ago. It was the ironic end to a month that saw volatility soar and debates rage around inflation, the Federal Reserve’s plan to bring it under control and its impact on the economy.
The S&P 500 fell 0.6% on Tuesday, bringing its monthly return to virtually zero. During May, the benchmark jumped more than 8% after falling within a few points of a 20% decline from a record high, signifying a bear market.
Ten-year Treasury yields climbed 12 basis points to 2.85%, just below their level at the start of the month. West Texas Intermediate oil was little changed, leaving it 10% higher in the month. And Bitcoin held over $31,000, down 17% in May.
Stocks started the day lower on fears that inflation is proving more persistent, intensifying the debate over how quickly central banks will raise interest rates. Eurozone consumer prices jumped 8.1% to a record high on a year earlier in May. Meanwhile, WTI crude pared gains from a partial ban on Russian oil by the European Union. The dollar advanced.
Fears that central bank rate hikes could tip the economy into a recession are keeping investors vigilant as rising food and energy prices squeeze consumers. May saw near-unprecedented volatility in stocks as the S&P 500 plunged more than 3% three times and capped its longest streak of weekly losses since 2001 to rebound at the end of the month.
The moves come amid skepticism over whether the market is close to a bottom and while volatility remains high. Swaps show traders almost fully priced in two half-point rate hikes in June and July, with even a chance of a third such hike in September.
“When you add in the likelihood that earnings estimates are going to have to be cut significantly over the summer, it reinforces our view that the stock market will need to see lower lows before the ultimate low for this decline to be reached” , said Matt Maley, chief market strategist at Miller Tabak + Co..
Federal Reserve Chairman Jerome Powell meets President Joe Biden in a rare Oval Office meeting on Tuesday to discuss inflation ahead of US payrolls figures later this week. The meeting follows comments by Fed Governor Christopher Waller on Monday suggesting the Fed should continue raising rates in half-percentage-point increments until inflation returns to target. of the central bank.
“It’s times like these that investors need a crystal ball,” wrote LPL Financial strategists Jeff Buchbinder and Ryan Detrick. “We fully recognize how difficult it is to see the bullish case for equities right now, and a retest of recent lows is certainly possible, but this week we lay out the bullish case for the second half. It starts with inflation.
Among individual stock moves, Deutsche Bank AG slipped after the lender and its asset management unit had their Frankfurt offices raided by police. Unilever Plc jumped when activist investor Nelson Peltz joined its board. And US-listed Chinese stocks – including Alibaba Group Holding Ltd. – climbed, putting stocks on track to erase monthly losses as the easing of lockdown measures in major cities and better-than-expected economic data reassured investors.
How will the markets be affected by the Fed’s quantitative tightening? QT officially begins on Wednesday and is the topic of this week’s MLIV Pulse survey.
Here are some key events to watch this week:
- The Federal Reserve is expected to start reducing its balance sheet by $8.9 trillion on Wednesday
- The Fed releases its Beige Book report on regional economic conditions on Wednesday
- New York Fed President John Williams and St. Louis Fed President James Bullard speak at separate events on Wednesday
- Virtual OPEC+ Meeting Wednesday
- Cleveland Fed President Loretta Mester discusses the economic outlook on Thursday
- US jobs report for May Friday
- The Food and Agriculture Organization of the United Nations releases its monthly food price index on Friday at a time when global supplies are of maximum concern
Some of the major movements in the markets:
- The S&P 500 fell 0.6% at 4:05 p.m. PT
- The Nasdaq 100 fell 0.3%
- The Dow Jones Industrial Average fell 0.7%
- The MSCI World index fell 0.6%
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.4% to $1.0735
- The British pound fell 0.4% to $1.2604
- The Japanese yen fell 0.9% to 128.69 per dollar
- The yield on 10-year Treasury bills rose 12 basis points to 2.85%
- Germany’s 10-year yield rose seven basis points to 1.12%
- The UK 10-year yield rose 11 basis points to 2.10%
- West Texas Intermediate crude fell 0.1% to $114.94 a barrel
- Gold futures fell 1% to $1,839.10 an ounce
–With help from John Viljoen and Andreea Papuc.