Equities Waver Following Last Week’s Rally…..

U.S. equities closed lower as stocks failed to capitalize on the early momentum from last week’s sharp rally that brought the S&P 500 out of bear market territory. The cautious market tone came in a choppy session as investors continued to weigh concerns about recession, as the Fed and other global central banks continue to aggressively hike rates to try to combat persistently high inflation. Similarly, Treasuries moved lower on the day, after last week’s upward movement, as yields rose across the curve, and the U.S. dollar continued to pare back from multi-decade highs. Crude oil prices were higher in choppy action, while gold turned to the downside. In economic news, preliminary durable goods orders increased more than forecasts, pending home sales surprised to the upside, and manufacturing activity in the Dallas region tumbled. In light equity news, Spirit Airlines accepted the sweetened offer from Frontier Group to acquire the discount airway company. European markets were mixed, as last week’s positive energy moderated somewhat, while Asia began the week on an up note amid a rally in tech stocks.

The Dow Jones Industrial Average lost 62 points (0.2%) to 31,438, the S&P 500 Index decreased 12 points (0.3%) to 3,900, and the Nasdaq Composite declined 83 points (0.7%) to 11,525. In moderate volume, 4.3 billion shares of NYSE-listed stocks were traded, and 4.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.95 to $109.57 per barrel. Elsewhere, the gold spot price decreased $5.50 to $1,824.80 per ounce, and the Dollar Index declined 0.2% to 103.96.

Preliminary durable goods orders rose 0.7% month-over-month (m/m) during May, compared to the Bloomberg consensus estimate of a 0.1% increase and versus April’s downwardly-revised 0.4% increase. Ex-transportation, orders were also up 0.7% m/m, above forecasts calling for a 0.3% advance and compared to April’s negatively-adjusted 0.2% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, were higher by 0.5%, compared to projections of a 0.2% rise, and versus the prior month’s downwardly-adjusted 0.3% gain.

Pending home sales surprisingly rose by 0.7% m/m in May—snapping a six-month skid—versus estimates of a 4.0% decline and following April’s negatively-revised 4.0% decrease. Sales tumbled 12.0% y/y on the heels of April’s unadjusted 11.5% fall. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales.

The Dallas Fed Manufacturing Index dropped further into contraction territory (a reading below zero) for June. The index tumbled to -17.7 from -7.3 in May, compared to the Bloomberg consensus estimate calling for an improvement to -5.8. The decline came as growth in shipments and production output decelerated, and new orders dipped into negative territory for the first time in two years, while growth in employment also moved lower, but remained above the series average. Inflation pressures increased strongly, remaining severely elevated.

Treasuries lost ground after seeing some gains last week that put downside pressure on yields as the markets appeared uneasy about the economic implications of an aggressive Fed to fight persistent inflation, with recession chatter heating up. Financial conditions continued to tighten amid the uneasiness and market skittishness was exacerbated by the prospect of the Fed tightening policy amid the backdrop of a slowing economy, which was illustrated by last week’s larger-than-expected slowdowns in manufacturing and services sector growth that was reported by S&P Global.

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