Stocks Start Shortened Week on High Note…..

U.S. equities finished solidly higher to start the holiday-shortened week on a high note after posting the worst weekly declines since March 2020 last week. Choppiness remained, and is likely to persist, as many central banks have aggressively tightened monetary policy in response to persistently high inflation, led by the Fed’s 75 basis point (bp) hike last week. Investors also awaited tomorrow’s start to Fed Chairman Jerome Powell’s two-day semi-annual Congressional testimony for additional insight into the monetary path forward. On the economic front, existing home sales declined for the fourth straight month, as home prices rose for the 123rd month in a row. In light equity news, Kellogg Company announced plans to separate into three independent public companies, while Tesla announced upcoming job cuts for salaried workers. Treasuries saw pressure to lift yields and steepen the curve, while the U.S. dollar trimmed a recent rally to 20-year highs. Crude oil prices rebounded from last week’s drop, and gold trading lower in choppy action. Most European markets added to yesterday’s rebound, while Asia finished mostly higher, though China dipped.

The Dow Jones Industrial Average rallied 641 points (2.2%) to 30,530, the S&P 500 Index advanced 90 points (2.5%) to 3,765, and the Nasdaq Composite gained 271 points (2.5%) to 11,069. In moderately heavy volume, 5.2 billion shares of NYSE-listed stocks were traded, and 5.1 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.53 to $109.52 per barrel. Elsewhere, the gold spot price was down $7.90 at $1,832.70 per ounce, and the Dollar Index lost 0.3% to 104.43.

Existing home sales decreased 3.4% month-over-month (m/m) in May to an annual rate of 5.41 million units, versus estimates of a 5.40 million rate, and April’s figure was adjusted slightly lower to 5.60 million units. Contract closings fell for the fourth-straight month as sales in all four major U.S. regions declined m/m. Compared to last year, sales were lower in all regions. Sales of single-family homes and purchases of condominiums and co-ops were both lower m/m and from the prior year.

The median existing home price was up 14.8% from a year ago to a record high $407,600 and are up for 123 straight months as prices grew in each region. Unsold inventory was at a 2.6-months pace at the current sales rate, up from the from the 2.5-months pace a year earlier. National Association of Realtors Chief Economist Lawrence Yun said, “Further sales declines should be expected in the upcoming months given housing affordability challenges from the sharp rise in mortgage rates this year.” Yun added that, “Nonetheless, homes priced appropriately are selling quickly and inventory levels still need to rise substantially – almost doubling – to cool home price appreciation and provide more options for home buyers. ” Existing home sales account for a large majority of the home sales market and reflect contract closings instead of signings.

Treasuries were lower with yields gaining ground and the curve steepening as high inflation data has forced the Fed to aggressively tighten its monetary policy with a 75 bp rate hike last week and signal more hikes to come. The yield on the 2-year Treasury note was up 2 bps to 3.21%, the yield on the 10-year note rose 7 bps to 3.30%, and the 30-year bond rate increased 10 bps to 3.38%.

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