Stocks Cool Down following Yesterday’s Rally…..

U.S. equities finished lower, cooling from the solid gains seen yesterday and despite tempered trade war concerns and some upbeat regional manufacturing data, as geopolitical issues resurfaced surrounding the upcoming U.S.-North Korea summit. In equity news, Toll Brothers fell short of profit forecasts, Lowe’s Companies snapped up J. C. Penney’s CEO, and some cautious commentary overshadowed Kohl’s upbeat quarterly report. Treasury yields, crude oil prices, gold and the U.S. dollar were all lower.

The Dow Jones Industrial Average (DJIA) fell 179 points (0.7%) to 24,834, the S&P 500 Index declined 9 points (0.3%) to 2,725, and the NASDAQ Composite fell 16 points (0.2%) to 7,379. In moderate volume, 820 million shares were traded on the NYSE and 1.9 billion shares changed hands on the NASDAQ. WTI crude oil traded $0.15 lower to $72.20 per barrel and wholesale gasoline was up $0.01 at $2.27 per gallon. Elsewhere, the Bloomberg gold spot price ticked $0.75 lower to $1,291.85 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.1% at 93.58.

The Richmond Fed Manufacturing Activity Index moved back to a level depicting expansion (a reading above zero), jumping to 16 in May from -3 in April, versus the Bloomberg estimate calling for a rise to 10.

Treasuries reversed to the upside, as the yield on the 2-year note fell 2 basis points to 2.55%, the yield on the 10-year note ticked 1 bp lower to 3.06%, and the 30-year bond rate was flat at 3.21%.

Treasury yields paused and the U.S. dollar slipped after both have seen recent rallies. Economic data and earnings growth remain solid, while trade tensions are thawing between the U.S. and China. However, expectations that the Fed may need to accelerate its tightening campaign have ticked higher, with inflation forecasts rising, setting the stage for tomorrow’s release of the minutes from the Fed’s monetary policy meeting earlier this month. The surge in crude oil prices as of late has also caused some skittishness regarding the impact on the all-important U.S. consumer.

Schwab Center for Financial Research – Market Analysis Group

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