Stocks Lose Steam

By Connor Smith |  Monday, June 27 Timeout! U.S. stocks paused their recent run on Monday as investors looked ahead to coming economic data releases. The three major U.S. indexes snapped a two-trading-day winning-streak with declines on Monday. The S&P 500 fell 0.3%, with 233 of the index's components rising, 264 components falling, and three components sitting unchanged. The Dow Jones Industrial Average fared a bit better with a 0.2% decline. The Nasdaq Composite had the worst day of the trio with a 0.7% drop. Barron's Teresa Rivas and Jack Denton write that fears that the Federal Reserve would raise rates too quickly looked to be easing, though stocks couldn't hold on to early gains. They write: Stocks managed a U-turn last week after Fed Chairman Jerome Powell acknowledged the possibility of a hard landing, which the market took as its cue to reduce the odds of very aggressive rate hikes. This equity rally was also supported by moderating economic data. “Markets continue to price that the worst is over for U.S. bond markets and that the end of Fed rate hikes will occur sooner as the economy in the U.S., and elsewhere, slow sharply in the second half of 2022,” said Jeffrey Halley, an analyst at broker Oanda.  Yet at the same time, a more nuanced look at the past week shows why today’s rally ran out of steam. Teresa and Jack note that Powell will appear at an event with the heads of the European Union and U.K. central banks on Wednesday. Then on Thursday, investors will get a look at the personal-consumption expenditures index. The latter is the Fed's preferred inflation indicator. In the meantime, Barron's Lisa Beilfuss writes that investors may have missed a positive inflation indicator last week: The University of Michigan revised its June consumer confidence survey on Friday, lowering five- to 10-year inflation expectations to 3.1%. That's back within a recent range. Lisa notes that Federal Reserve officials pointed to the preliminary figures when it raised interest rates last month. Lisa adds: In other words, says Omair Sharif of Inflation Insights, “the preliminary move that Chair Powell described as ‘eye-catching’ ended up being pedestrian.” Data are always at risk of being revised, and one month doesn’t make a trend. The latest report also doesn’t change the fact that current levels of inflation expectations are still above the Fed’s 2% target. But given that the Fed has shown it is particularly sensitive to inflation-expectations data, the downward revision to June’s number from the University of Michigan is one reason to believe the 0.75-percentage-point rate hike in June was an anomaly and not the start of an even more aggressive tightening cycle. To be sure, the revision doesn't mean stocks are out of the woods yet. But in this market, a timeout's not the worst thing in the world for investors.

 

DJIA: -0.20% to 31,438.26 S&P 500: -0.30% to 3,900.11 Nasdaq: -0.72% to 11,524.55 The Hot Stock: Valero Energy +8.0% The Biggest Loser: Etsy -3.6% Best Sector: Energy +2.9% Worst Sector: Consumer Discretionary -1.1% Disrupting the Game: A Live Conversation With Reggie Fils-Aimé Thursday, June 30 | 1PM ET Barron's deputy editor Alex Eule speaks with former Nintendo of America president Reggie Fils-Aimé as he shares leadership lessons and inspiring stories from his newly released book, Disrupting The Game. Sign up here.