Stocks Slip in Rally Reality Check; Bonds Gain: Markets Wrap

Stocks slid on Tuesday as the second-quarter rally met resistance from economic headwinds and signs of stretched positioning. Treasuries advanced.

(Bloomberg) — Stocks slid on Tuesday as the second-quarter rally met resistance from economic headwinds and signs of stretched positioning. Treasuries advanced.

US equities slumped as the S&P 500 Index backed off from the 14-month high reached last week. Nike Inc. fell on inventory concerns while PayPal Holdings Inc. climbed after reaching a loan accord with KKR & Co. 

Investors caught between fear of missing out and concerns markets have run too far, too fast are contending with overblown valuations and economic headwinds. Bullish positioning in US equity futures grew last week, taking it to the most extended levels for the S&P 500 and Nasdaq 100 in data going back to 2010, according to Citigroup strategists.

“In the short run, six to 12 months, we are navigating treacherous waters,” Sebastien Page, chief investment officer at T Rowe Price, told Bloomberg Television. Growth stocks — particularly those in the tech sector — have been driven by a range of factors, including “positive surprises” on revenues and advertising as well as excitement for artificial intelligence, he added. “That’s all part of the value versus growth equation.” 

The path of US monetary policy is another wild card. Federal Reserve Chair Jerome Powell will give his semi-annual report to Congress on Wednesday. Policymakers at the Fed kept interest rates unchanged at their latest meeting but warned of more tightening ahead. Investors also await the outcome of policy meetings in Turkey, the UK and Switzerland.

The Fed decision last week came with forecasts for higher borrowing costs of 5.6% in 2023, implying two additional quarter-point rate hikes or one half-point increase before the end of the year. 

That contrasts with market pricing for some 20 basis points of tightening in the remainder of the year.

“Generally speaking a high-multiple environment is only accompanied by a declining policy rate when earnings have collapsed,” Mike O’Rourke of JonesTrading wrote. “It will take a reality check in equities along with economic headwinds before rate cuts emerge. High stock multiples and a high policy interest rate are not a relationship that can be sustained in the long term.”

US Treasuries yields traded near session lows after bouncing amid an unexpected surge for housing starts in May, the most since 2016.

“This is strong data,” Sonal Desai, chief investment officer for Franklin Templeton Fixed Income, told Bloomberg Television. “It continues to feed into the narrative that housing, new starts, are not going to be the first place which collapsed.”

Meanwhile, in global currencies the Swedish krona slumped to a record low against the euro as traders expect the Riksbank to tap the brakes on rate hikes in coming months.

Gold and oil retreated after disappointment over China’s stimulus measures. US-listed Chinese stocks also tumbled with Alibaba Group Holding Ltd. dropping about 4.5% following the surprise replacement of its chief executive and chairman.

Key events this week:

  • Federal Reserve Bank of St. Louis President James Bullard speaks, Tuesday
  • New York Fed President John Williams speaks, Tuesday
  • Federal Reserve Chair Jerome Powell delivers semi-annual congressional testimony before the House Financial Services Committee, Wednesday
  • Federal Reserve Bank of Chicago President Austan Goolsbee speaks, Wednesday
  • Eurozone consumer confidence, Thursday
  • Rate decisions in UK, Switzerland, Indonesia, Norway, Mexico, Philippines, Turkey, Thursday
  • US Conference Board leading index, initial jobless claims, current account, existing home sales, Thursday
  • Federal Reserve Chair Jerome Powell delivers semi-annual testimony to Congress before the Senate Banking Committee, Thursday
  • Cleveland Fed’s Loretta Mester speaks, Thursday
  • Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
  • Japan CPI, Friday
  • US S&P Global Manufacturing PMI, Friday
  • Federal Reserve Bank of St. Louis President James Bullard speaks, Friday

Some of the main moves in markets: 


  • The S&P 500 fell 0.9% as of 10:26 a.m. New York time
  • The Nasdaq 100 fell 0.7%
  • The Dow Jones Industrial Average fell 1.1%
  • The Stoxx Europe 600 fell 0.5%
  • The MSCI World index fell 0.8%


  • The Bloomberg Dollar Spot Index rose 0.3%
  • The euro fell 0.2% to $1.0904
  • The British pound fell 0.6% to $1.2721
  • The Japanese yen rose 0.2% to 141.67 per dollar


  • Bitcoin fell 0.1% to $26,679.78
  • Ether fell 0.9% to $1,714.98


  • The yield on 10-year Treasuries declined five basis points to 3.71%
  • Germany’s 10-year yield declined 11 basis points to 2.41%
  • Britain’s 10-year yield declined 16 basis points to 4.34%


  • West Texas Intermediate crude fell 3% to $69.65 a barrel
  • Gold futures fell 1.4% to $1,943.50 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Cecile Gutscher.

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