U.S. stocks closed the trading session well lower, relinquishing all of an early advance that transpired in the wake of reported measures taken in regard to restrictions on foreign investment that appeared tamer than had been anticipated. Tech shares led to the downside, but energy stocks bucked the trend as crude oil prices extended a run to multi-year highs. Treasuries and the U.S. dollar advanced, while domestic economic reads included a mixed durable goods orders report and an unexpected narrowing of the advance trade deficit. Gold traded to the downside.

The Dow Jones Industrial Average (DJIA) declined 166 points (0.7%) to 24,118, the S&P 500 Index lost 23 points (0.9%) to 2,700, and the NASDAQ Composite fell 117 points (1.5%) to 7,445. In moderate volume, 895 million shares were traded on the NYSE and 2.3 billion shares changed hands on the NASDAQ. WTI crude oil jumped $2.23 to $72.76 per barrel and wholesale gasoline was up $0.05 at $2.11 per gallon. Elsewhere, the Bloomberg gold spot price traded $6.67 lower to $1,252.37 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—rose 0.7% to 95.38.

May preliminary durable goods orders declined 0.6% month-over-month (m/m), compared to the Bloomberg estimate of a 1.0% decline, but April’s 1.6% drop was revised to a 1.0% decrease. Ex-transportation, orders were down 0.3% m/m, versus forecasts of a 0.5% rise and compared to April’s notable upward revision to a 1.9% gain. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, decreased 0.2%, versus projections of a 0.5% increase, though the prior month’s figure was revised nicely higher to a 2.3% increase from the initial 1.0% rise.

The advance goods trade balance unexpectedly narrowed to a deficit of $64.8 billion in May, from the downwardly revised $67.3 billion in April, and versus expectations of a $69.0 billion shortfall.

Preliminary wholesale inventories rose 0.5% m/m in May, versus forecasts of a 0.2% gain, and following April’s unrevised 0.1% increase.

The MBA Mortgage Application Index declined 4.9% last week, following the prior week’s 5.1% rise. The decrease came amid a 3.5% drop for the Refinance Index, which was met with a 5.9% fall in the Purchase Index. The average 30-year mortgage rate ticked 1 basis point (bp) higher to 4.84%.

Pending home sales declined 0.5% m/m in May, versus projections of a 0.5% gain, and following the unrevised 1.3% drop registered in April. Sales were 2.8% lower y/y. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales, which unexpectedly declined in May.

Treasuries were higher, with the yield on the 2-year note declining 4 bps to 2.51%, the yield on the 10-year note dropping 5 bps to 2.83%, and the 30-year bond decreasing 6 bps to 2.97%.

Schwab Center for Financial Research – Market Analysis Group

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