(Bloomberg) — Stocks lost steam as buyers showed signs of fatigue following the rally to record highs and calls for short-term weakness grew.
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The S&P 500 fell after briefly topping 5,500 but still remained above a technical threshold that signals market overinflation. High-flying tech companies that have driven the bull market came under pressure, and the Nasdaq 100 fell after seven straight days of gains.
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“Bull momentum for the S&P 500 and Nasdaq remains strong, but near-term overbought conditions and narrowing ranges make stocks vulnerable to a pullback or correction,” said Piper Sandler’s Craig Johnson.
Treasuries fell despite mostly weak economic data after nearly erasing this year’s losses. Federal Reserve Bank of Minneapolis President Neel Kashkari said the central bank will bring inflation back to the Fed’s 2% target, but estimated that will probably take a year or two.
The S&P 500 was down slightly, with Apple and Nvidia leading the declines among large-cap stocks. Qualcomm fell 5%.Wall Street was also bracing for Friday’s quarterly “triple witching,” the expiration of derivative contracts tied to stocks, index options and futures, forcing traders to roll over existing positions or initiate new ones in unison.
The yield on the 10-year U.S. Treasury note rose 4 basis points to 4.26%. Traders expect the Bank of England to cut interest rates in August following dovish signals from policymakers. The franc led developed currencies lower after the Swiss National Bank cut borrowing costs. The yen is on track to close at its lowest in 34 years, raising the risk that Japan will again ratchet up the yen.
The S&P 500 has set 31 new records this year, but few non-tech stocks have participated in the rally.
Over the past three months, the index’s 10 largest stocks by market capitalization, most of which are tech giants, have risen an average of 17%, while the rest have fallen 1.3%, according to data compiled by Bloomberg Intelligence equity strategist Gillian Wolf.
Equity valuations have risen to the higher end of their historical ranges, and the future earnings profile isn’t particularly robust for new money, according to Nicholas Bonsack of Strategas.
“Still, there seems to be little to slow the domestic bull market,” he said. “The economy is showing signs of weakening momentum, but globally it is broadly strong. Market trends remain favorable and earnings expectations are broadening. We will remain bullish until payment due.”
On the economic front, data was generally weak, with new housing starts falling to a four-year low and the Philadelphia Fed’s unemployment index coming in weaker than expected. Initial U.S. jobless claims were little changed.
The string of weaker-than-expected data pushed Citigroup’s U.S. Economic Surprise Index, which measures the difference between actual releases and analysts’ forecasts, to its lowest since August 2022.
Don Rissmiller of Strategas sees fundamental support for the economy remaining until hiring weakens significantly, even if interest-rate-sensitive sectors such as housing come under some pressure.
“The U.S. economy still looks strong enough at this point to tolerate an extended pause in rate hikes (mixed news is not weak news),” he said, “but we will continue to closely monitor jobless claims numbers for signs of widening cracks.”
Company Highlights:
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Executives at supermarket operator Kroger Co. blamed pressure on pharmacies and increased promotions for the decline in profits.
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Hertz Global Holdings Inc. is seeking to raise $750 million in a two-part junk bond offering to shore up its balance sheet following missteps with its electric-vehicle fleet.
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BP has agreed to take full control of a Brazilian ethanol joint venture with agribusiness giant Bunge Global SA, while scaling back several new biofuel projects in the United States and Europe.
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Honeywell International has agreed to buy aerospace and defense company CAES Systems from private equity firm Advent International for $1.9 billion.
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A twice-yearly experimental vaccine from Gilead Sciences Inc. prevents 100% of HIV infections among women and girls in Africa, marking the first successful large-scale trial of what is expected to be a powerful new medicine to fight the virus.
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Vertex Pharmaceuticals has reached an agreement with the UK’s National Health Service on the price of its cystic fibrosis treatment, ending a years-long campaign by patients to secure access to the medicine.
Major events this week:
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Eurozone S&P Global Manufacturing PMI, S&P Global Services PMI, Friday
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U.S. Existing Home Sales, Conference Board Leading Index, Friday
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Fed President Thomas Barkin to speak on Friday
Some of the key market developments:
stock
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The S&P 500 was down 0.3% as of 1:06 p.m. New York time.
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The Nasdaq 100 fell 0.8%.
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The Dow Jones Industrial Average rose 0.5%.
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The MSCI World Index fell 0.2%.
currency
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The Bloomberg Dollar Spot Index rose 0.3%.
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The euro fell 0.3% to $1.0709.
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The British pound fell 0.4% to $1.2664.
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The Japanese yen fell 0.5% to 158.90 yen to the dollar.
Cryptocurrency
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Bitcoin little changed at $64,812.77
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Ether fell 1.1% to $3,514.13.
Bonds
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The yield on the 10-year Treasury note rose 4 basis points to 4.26%.
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German 10-year government bond yields rose 3 basis points to 2.43%.
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UK 10-year government bond yields fell 1 basis point to 4.06%.
merchandise
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West Texas Intermediate crude rose 0.6% to $82.10 a barrel.
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Spot gold rose 1.2% to $2,355.92 an ounce.
This story was produced with assistance from Bloomberg Automation.
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