U.S. stocks trade mostly lower after manufacturing data underlines bottlenecks

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MARKET SNAPSHOT

Angela Weiss/AFP/Getty Images

U.S. stocks were trading mostly lower early afternoon Tuesday, with technology stocks underperforming the broader market, as optimism about economic recovery was undermined by doubts about inflation after a reading on U.S. manufacturing activity underlined labor shortages and supply bottlenecks.

How are stock benchmarks performing?

  • The Dow Jones Industrial Average was up  62.29 points, or 0.2%, at 34,591.74.
  • The S&P 500 was off 0.39 point at 4,203.72.
  • The Nasdaq Composite declined 6.3 points, or 0.1%, to 13,742.44

Last month, the Dow booked a rise of 1.9%, marking its fourth monthly gain in a row; the S&P 500 rose 0.6%, also marking its fourth straight monthly advance; while the Nasdaq Composite Index saw a 1.5% monthly fall.

What’s driving the market?

The Dow Jones Industrial Average gave up early gains Tuesday after a global equity rally pushed stock markets in Asia to their highest levels in a month and the Stoxx Europe 600 index closed at a record.

An early jump in U.S. stocks, which saw the S&P 500 trade near an all-time high, lost steam as survey-based data on manufacturing activity showed that shortages of supplies and labor mean firms are struggling to fill a surge in new orders for cars, computers, furniture, appliances and all sorts of goods.

The Institute for Supply Management said its manufacturing index rose to 61.2% in May from 60.7% in April. New orders paced the rise, while production and hiring slowed. That’s a recipe for further inflation.

“The nation’s factories are humming, with strong demand for products supporting activity that would be even stronger if the resources were available to expand production,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors, in a note.

“That should improve in time as millions of unemployed Americans are incentivized to fill a flood of job openings. Even so, it will take some time for the bottlenecks in the system to be worked out. Until that is achieved, upward pressure on prices will likely continue.”

The economic recovery has raised inflation fears which helped push up Treasury yields Tuesday. Tech-related stocks, which are more sensitive to rising yields, were leading the way lower as equities weakened.

The “biggest issues out there” are whether inflation is transitory and what the Federal Reserve is going to do around tapering, according to Matthew Tuttle, chief executive officer and chief investment officer of Tuttle Capital Management.

“Until we get answers to those questions, I don’t really think you’ll see the broad market really going anywhere,” he said Tuesday in a phone interview.  But “beneath the surface there’s gonna be a lot going on,” he said, including in meme stocks like AMC Entertainment Holdings and GameStop Corp. innovative technology bets, and “the growth versus value battle.”

The U.S. manufacturing data comes after China’s gauge of private-sector manufacturing activity, the Caixin/Markit Manufacturing Purchasing Managers’ Index, rose to 52, up from 51.9 in the previous month and marking the highest level since December. A reading of at least 50 indicates improving conditions.

Meanwhile, the IHS Markit/CIPS UK Manufacturing PMI rose to 65.6 in May from 60.9 in April, representing the highest reading since 1992.

The eurozone jobless rate fell in April, even as COVID-19 restrictions continued leading many businesses to reduce or suspend services.

May’s mostly muted equity moves suggest that investors are coming around to the notion that inflation will be transitory and that the Federal Reserve will patient in retracting stimulus measures that have been put in place to help support the economy amid coronavirus. Uncertainty about how inflation will playout, however, has been a key source of market turbulence.

“Economic data have been erratic, and we expect more of the same as economies restart amid pent-up consumer demand and supply shortages,” wrote analysts at BlackRock, in a weekly outlook note. “We advocate looking through near-term market volatility and remain pro-risk, predicated on our belief that the Federal Reserve faces a very high bar to divert from its new policy framework to keep yields low.”

Meanwhile, COVID cases continued to decline in the U.S. as vaccination rates rise. More than 62% of adults have received at least one vaccine dose, the CDC reported Sunday. said. There were just 12,663 new cases on Saturday, according to the CDC, the lowest since March 2020.

Market participants will hear from two Fed speakers on Tuesday, ahead of the central bank’s media blackout period before a two-day policy meeting June 15-16.

Randal Quarles, the Fed’s vice chair for supervision, was scheduled to be interviewed by Politico at 10 a.m. and Fed Gov. Lael Brainard will deliver a speech to Economic Club of New York at 2 p.m. Eastern.

See: Life might feel more certain this summer, but betting on a calm stock market still could go wrong

Which companies are in focus?

  • Shares of Cloudera IncCLDR, soared 24% after the data management and analytics software company disclosed a deal to be acquired for $16 a share in cash by funds advised by Clayton, Dubilier & Rice LLC and Kohlberg Kravis Roberts & Co. L.P. 
  • LifeStance Health Group IncLFST, disclosed Tuesday that it has set terms of its initial public offering, in which the Arizona-based outpatient mental health company looks to raise up to $557.6 million and be valued at up to $6.35 billion. 
  • AMC Entertainment Holdings Inc. AMC disclosed Tuesday that it sold 8.5 million shares of its common stock for $230.5 million to Mudrick Capital Management L.P. The share sale deal would represent a price of for AMC’s stock of $27.12 a share, which is 3.8% above Friday’s closing price of $26.12. Shares jumped about 19%.
  • Chinese electric vehicle maker NIO NIO said May deliveries rose 95% year-over-year to 6,711 vehicles. Shares were up 8.5%.

How are other markets trading?

  • The yield on the 10-year Treasury note rose 3.5 basis points to 1.619%. Yields and bond prices move in opposite directions.
  • The ICE U.S. Dollar Index a measure of the currency against a basket of six major rivals, was down 0.3%.
  • Oil futures jumped sharply as OPEC+ ministers met to discuss output plans, with the U.S. benchmark rising 2%. Gold futures were little changed at about $1,905 an ounce.
  • In Europe, the pan-Continental Stoxx Europe 600 index rose about 0.8% to a fresh record close, while London’s FTSE 100 gained 0.8%.
  • In Asia, the Shanghai Composite rose 0.3%, while Hong Kong’s Hang Seng Index jumped 1.1% and Japan’s Nikkei 225 fell 0.2%.

Mark DeCambre contributed to this report

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