The U.S. White House continues to negotiate with Republican members of Congress on the debt ceiling. Both President Biden and House Speaker McCarthy expressed optimism about reaching an agreement before June 1. Some analysts suggest that this seems to be the consensus in the financial markets, hence the decent performance of U.S. stocks under pressure. However, some Republicans questioned June 1 as the "X date", and with McCarthy stating that an agreement couldn't be reached on Tuesday, U.S. stocks quickly fell to a daily low at the end of the session.
U.S. economic data was mixed. Sales of new homes in April increased 4.1% month-on-month, exceeding expectations. The Richmond Fed's manufacturing index for May unexpectedly fell to -15, the lowest in three months. The Philadelphia Fed's service index slightly improved in May, but remained in negative territory for the third consecutive month. The U.S. Markit Composite PMI initial value for May was 54.5, a 13-month high, while the Markit Services PMI initial value was 55.1, also a 13-month high. The manufacturing PMI initial value was 48.5, lower than expected and a three-month low.
Federal Reserve Chairman Jerome Powell held a closed-door meeting with House Democrats, avoiding discussion of the debt ceiling negotiations and monetary policy. One lawmaker revealed that Powell believes the overall economy is starting to improve, but he's worried about inflation rates remaining in the high range of 4% to 5%.
Neel Kashkari, Minneapolis Federal Reserve President and voting member this year, reiterated that more data is needed about the economy. A possible mild recession could reduce inflation; if inflation remains high, it may be necessary to keep interest rates at a higher level. Yesterday, he stated that the reasons for pausing and continuing rate hikes in June are "equally compelling". If there are no signs of a decrease in inflation, it may be necessary to increase interest rates until the benchmark rate exceeds 6%.
The futures market slightly adjusted the probability of the Fed raising rates by 25 basis points in June from 25.7% yesterday to 27%, still leaving a 73% chance of no rate hike. The market also believes that there will be at most one rate cut by the end of the year, with a 58% chance of the Federal Funds rate falling to the 4.75%-5% range. The expectation of traders in the past few weeks has been for up to three rate cuts by the end of the year, but this has been dispelled by recent hawkish remarks by central bank officials.
In the eurozone, the Composite PMI slightly fell to 53.3 in May, remaining in the expansion range for the fifth consecutive month. The services sector continued to drive robust growth, but the manufacturing PMI initial value was 44.6, a three-year low. The UK manufacturing PMI initial value for May was 46.9, a five-month low and lower than expected. The IMF says that the UK economy will avoid a recession this year and raised the GDP expectation to 0.4%. In April, it had predicted a contraction of 0.3% for the year.
S&P and Nasdaq fell more than 1%, Dow fell over 230 points, European luxury giants slumped, banking stocks rose for two consecutive days.
On Tuesday, May 23, the market remained focused on the U.S. debt ceiling negotiations, which have yet to yield an agreement. The three major U.S. stock indices opened lower, with the Dow dropping more than 170 points in early trading. However, an hour after opening, the Dow turned positive and the S&P 500 and Nasdaq's losses were significantly narrowed to 0.2%.
After midday, the Dow turned lower again, and U.S. stock losses quickly deepened, with all indices closing at their daily lows. The Russell 2000 erased gains of more than 1% and turned negative, even though it had reached its highest level in two and a half months since March 9, once rising above 1800 points. The S&P and Nasdaq fell more than 1%, with the Dow falling over 230 points.
The S&P wiped out its gains since last Wednesday, while the Dow fell for three consecutive days and is close to erasing its gains since last Tuesday. The Nasdaq lost its highest level since August 18 of last year, and the Nasdaq 100 lost its highest level in 13 months since April 20 of last year, both erasing most of the gains since last Wednesday:
The S&P 500 index fell 47.05 points, or 1.12%, to close at 4145.58. The Dow fell 231.01 points, or 0.69%, to 33055.51. The Nasdaq fell 160.53 points, or 1.26%, to 12560.25. The Nasdaq 100 was down 1.3%, and the Russell 2000 small-cap index was down 0.4%.
Nearly all of the S&P's 11 sectors collapsed, with materials, technology and communication services all falling 1.5%. Real estate, industry, and finance sectors also fell at least 1.2%, with only energy rising 1%.
Star tech stocks spiked and then receded. "Metaverse" company Meta fell 0.6%, falling from a more than 15-month high. Apple fell 1.5% to a one-week low, further losing its nearly one and a half year high. Amazon slightly fell, moving away from a near seven-month high. Microsoft fell nearly 2%, losing its high since January 2022. Netflix fell nearly 2%, falling for three consecutive days from a more than 13-month high. Google's A shares fell nearly 2%, losing a 13-month high. Tesla fell 1.6%, ending a five-day winning streak and losing a seven-week high.
Most chip stocks fell. The Philadelphia Semiconductor Index fell more than 1%, losing 3200 points. Nvidia fell 1.6%, falling for three consecutive days from a high since November 2021, and Intel fell 2.5%. Micron Technology, which fell nearly 3% yesterday, fell another 0.5%. However, AMD rose slightly to a 15-month high; Broadcom, which reached a multi-billion dollar agreement with Apple for the production of 5G radio frequency components in the U.S., rose 3% at one point to a historical high. Bank of America called it the "most undervalued AI beneficiary stock".
AI concept stocks turned lower. C3.ai, which rose more than 10% yesterday, fell 2.6%, and SoundHound.ai, which rose more than 15% yesterday, fell 7%. Both fell from their seven-week highs since April 3. However, BigBear.ai, which rose more than 9% yesterday, rose nearly 2% again, continuing to move away from a six-week low.
U.S. stocks with a focus on China saw a significant drop. The KWEB China Internet ETF fell over 3%, while the CQQQ China Technology ETF was down 2.6%. The Nasdaq Golden Dragon China Index (HXC) also fell 2.4% to a two-week low. Among the Nasdaq 100 constituent stocks, JD.com dropped 2.6%, Pinduoduo dropped nearly 2%, Baidu fell more than 3%, and NetEase saw a drop over 5%. Other individual stocks, such as Alibaba and Tencent ADR, fell more than 3%, Bilibili fell over 4%, and Xpeng Motors, with the largest drop, fell more than 3%. Kingsoft Cloud dropped 8.6%, with first-quarter revenue falling 14.2% year-over-year. Vipshop fell over 4%, with Q1 net profit increasing nearly 70% year-on-year.
Bank stock indexes have set highs for two consecutive days since May 1st. The industry benchmark Philadelphia Stock Exchange KBW Bank Index (BKX) rose 0.7%, reaching its lowest since October 2020 on May 4th. The KBW Nasdaq Regional Banking Index (KRX) rose nearly 1%, reaching its lowest since November 2020 on May 11th. The SPDR S&P Regional Banking ETF (KRE) rose nearly 1%, hitting its lowest since October 2020 on May 4th.
Among the "Big Four" U.S. banks, only JPMorgan Chase fell, dropping 1%, while Bank of America rose nearly 1%. Among regional banks, PacWest Bancorp, which had closed up nearly 20% the day before, rose another 24% to close nearly 8% higher. But Western Alliance Bancorp, which had risen more than 10% the previous day, turned around and fell more than 1%. Zions Bancorporation rose about 5% for the second consecutive day.
Significant stock fluctuations include:
Dick's Sporting Goods rose more than 3% before reversing and falling more than 1%, hitting a four-month low. It reported first-quarter earnings and revenue that exceeded expectations and reaffirmed its 2023 earnings guidance. Lowe's, the second-largest home improvement retailer in the U.S., rose nearly 2% following a favorable first-quarter earnings report, but reduced its full-year revenue forecast. Video conferencing company Zoom fell 8% to a one-and-a-half-week low, with second-quarter guidance in line with expectations.
Yelp, the U.S. equivalent of "Dianping," rose as much as 13% to a nearly seven-month high. Aggressive investor TCS Capital Management disclosed it holds over 4% of shares and urged the company to consider a strategic sale at a minimum of $70 per share, a 120% premium over the current stock price.
Energy giant Chevron rose 3% to a two-week high, helping to boost the Dow Jones Industrial Average. HSBC upgraded the rating to "buy," stating that if oil prices recover from the 6% drop since May, the company may become the stock with the biggest gain among oil giants.
Lordstown Motors, an electric truck company, fell nearly 11% at one point, closing down more than 5% at $0.28. The company announced a 1-for-15 reverse stock split to reduce equity in an attempt to meet the Nasdaq's minimum price of $1 per share listing requirement. The stock has fallen more than 75% this year.
COVID-19 vaccine stocks are on the rise. Moderna surged by 8.7%, BioNTech by over 8%, and Pfizer by over 2%. Reports suggest that White House officials are still seeking to continue funding for COVID-19 vaccine vaccination programs in debt ceiling negotiations.
European stock market luxury giants' share prices all fell, with Hermès down 6.5%, LVMH down 5%, and Kering down 3%. The luxury goods industry wiped off over $30 billion in market value in just one day. Mainstream investment banks such as Morgan Stanley stated that this was due to growing market concerns about the purchasing power of American consumers under the shadow of a possible recession.
European stocks fell across the board, with industrial stocks down 1.3% and oil and gas stocks bucking the trend with a 1% rise. The pan-European Stoxx 600 index fell 0.6%, and the Euro Stoxx 50 index fell nearly 1%. The German stock index fell for two consecutive days from the closing high set last Friday, while French stocks fell more than 1.3% to finish at the bottom.
The yield on the two-year U.S. Treasury note rose 11 basis points at one point to a more than two-month high but retreated at the close due to a deadlock in debt ceiling negotiations. In the context of rising expectations for the Fed to raise interest rates, U.S. Treasury yields continued to rise across the board. Meanwhile, the yield on the one-month U.S. Treasury note rose to a record high of 5.904%, reflecting market anxiety about debt ceiling negotiations.
European bond yields also rose in tandem. The yield on the 10-year German bund, the eurozone's benchmark, rose more than 1 basis point at the close to 2.47%. The yield on 10-year U.K. bonds rose nearly 10 basis points, also related to the rising expectations of rate hikes. The money market is betting that the European Central Bank will hike rates twice more, each by 25 basis points, with rates possibly at 3.8% by the end of the year.
After Saudi Arabia warned short sellers to "be careful," oil prices rose more than 2% during the session to a two-week high, while U.S. natural gas hit a one-week low. Boosted by the prospect of tighter supplies, international oil prices rose more than 1%, with WTI June crude futures up $0.92, or 1.28%, to $71.99 a barrel. Brent July futures rose $0.85, or 1.12%, to $76.84 a barrel.
The U.S. dollar hit a more than two-month high, with the yen hitting a six-month low and the offshore yuan briefly breaking 7.07. Market expectations for the U.S. interest rate to stay high for a longer time pushed the DXY, a basket of six major currencies against the dollar, up 0.4% to 103.65. Bitcoin, the largest cryptocurrency by market value, rose over 1% and surpassed the $27,000 mark, while Ethereum, the second-largest, rose nearly 2% and stood above $1850.
Spot gold fell through both the $1970 and $1960 barriers, while London metals fell for two consecutive days, with copper hitting a low for the year. U.S. dollar and U.S. bond yields rose together, causing gold prices to fall for two consecutive days.
London's base metals fell for two consecutive days, analysts say, due to worries about demand prospects and escalating market anxiety over U.S. debt ceiling negotiations:
Copper, which fell over $100 and 1.5% yesterday, fell another 0.3% to just under $8100, marking a new low for the year and coming close to the lowest point since the end of November last year. Aluminum fell 1.6% to a near two-week low. Zinc dropped 2.4% and broke the $2400 barrier, hitting a new low not seen since October 2020. Nickel declined 1.7%, hovering at a near nine-month low. Tin fell 2.5% to a six-week low.