The S&P 500 erased its monthly advance on the final trading session of May amid speculation that the equity market has run too far, too fast as global economic risks loom.
(Bloomberg) — The S&P 500 erased its monthly advance on the final trading session of May amid speculation that the equity market has run too far, too fast as global economic risks loom.
Equities extended losses as the Labor Department’s so-called JOLTS report showed vacancies at employers unexpectedly surged to over 10 million. The figures reinforced speculation the Federal Reserve will have room for another interest-rate hike by July — boosting the odds of a hard landing down the road. Earlier figures from China and Europe also added to concerns about a downturn.
“We’re facing quite a lot of headwinds: firstly, the China growth story, clearly that’s been a major disappointment. On top of that, there’s a risk of a US recession, and for the euro region, there’s a likelihood that they’re facing stagnation,” Jane Foley, head of currency strategy at Rabobank, said on Bloomberg Television. “So you’ve got a pretty disappointing outlook for growth, not an environment where you really want to be piling en masse into high-risk assets.”
The S&P 500 fell almost 1% — dropping below its key 4,200 level — and was little changed for the month. Also weighing on sentiment was the fact that the big tech names that have led the recent equity rally started rolling over this week, with Nvidia Corp. down about 3.5% Wednesday after almost tripling in value this year.
Narrow Breadth
While many on Wall Street say that doesn’t mean the enthusiasm for the sector will fade, there’s been growing concern about the fact that other industries haven’t been able to catch up in a meaningful way.
“Much of this year’s stock market rally has been driven by only a few technology stocks, and this is not a dynamic that is typically seen at the start of bull markets,” said Robert Schein, chief investment officer, Blanke Schein Wealth Management. “We need the participation of other sectors, and narrow market breadth is not sustainable over the long term.”
Schein expects the outsized performance of big tech to be tempered in the coming quarters. While the combination of a debt-ceiling deal and a Federal Reserve pause could propel the market higher, any strength would be short-lived as investors start pricing in lower earnings estimates, he noted.
“If one is realistic, we believe that it is hard to argue that the rest of the stock market can catch-up to the big-cap tech sector, with a credit crunch looming in the US and the growth in China fading in a serious manner,” said Matt Maley, chief market strategist at Miller Tabak.
‘Extremely Vulnerable’
To Jonathan Krinsky at BTIG, equities remain “extremely vulnerable” as the market heads into the last month of the quarter.
Over the last 20 years, June has been the second worst month for the S&P 500, averaging a decline of 0.38%, with only September being worse with a drop of 0.6%.
“By now, everyone is well aware of the market’s breadth problem, and we think June will show the risks when the weak remain weak, and the strong unwind lower,” Krinsky noted.
In corporate news, Hewlett Packard Enterprise Co. tumbled 6% after projecting revenue for the current quarter that fell short of analysts’ projections. Advance Auto Parts Inc. plunged 30% on a bearish outlook. American Airlines Group Inc. dropped 0.6% even after boosting its profit forecast.
The US dollar rose, making commodities priced in the currency more expensive for international investors. West Texas Intermediate crude deepened its slide below $70. ICE Brent futures were also lower.
Elsewhere, the crypto rebound is losing steam, leaving Bitcoin on course for its worst month since the FTX exchange collapsed in November last year. The roughly 8% drop in May is Bitcoin’s first monthly retreat of 2023.
Traders also watched the latest developments in Washington, with the debt-limit deal struck by President Joe Biden and Speaker Kevin McCarthy heading toward a vote Wednesday in the House of Representatives.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.9% as of 11:31 a.m. New York time
- The Nasdaq 100 fell 0.9%
- The Dow Jones Industrial Average fell 0.8%
- The Stoxx Europe 600 fell 1.1%
- The MSCI World index fell 1.1%
Currencies
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.7% to $1.0661
- The British pound fell 0.2% to $1.2394
- The Japanese yen was little changed at 139.68 per dollar
Cryptocurrencies
- Bitcoin fell 3% to $26,949.63
- Ether fell 2.4% to $1,858.6
Bonds
- The yield on 10-year Treasuries declined four basis points to 3.65%
- Germany’s 10-year yield declined seven basis points to 2.27%
- Britain’s 10-year yield declined seven basis points to 4.18%
Commodities
- West Texas Intermediate crude fell 1% to $68.74 a barrel
- Gold futures rose 0.7% to $1,991.70 an ounce
This story was produced with the assistance of Bloomberg Automation.
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