U.S. Stock market, Pausing amid Tech stock adjustments... Rise in Bond yields on Delayed prospect of Fed Rate cut
Record-breaking rise in May's US stock market (Source: CNN)
On the 20th (local time), the US stock market took a breather after the recent rally. S&P 500 closed down 0.4%, Nasdaq 100 fell 0.6%, and the Dow Jones dropped 0.2%. Concerns about overheating following the six-day consecutive rise and the recovery of a market capitalization totaling 8.6 trillion dollars seemed to trigger profit-taking.
The expectation that the Federal Reserve's interest rate cut will be delayed longer than initially expected also burdened investor sentiment. On this day, the yield on the 10-year US Treasury rose by 5 bp to 4.49%, reflecting some expectations of a cut. As attention is focused on the words of Federal Reserve Board members, the market is readjusting the timing of the rate cut to September or October.
While tech stocks showed weakness overall, Tesla closed higher with the CEO Elon Musk's declaration of staying. Most large-cap stocks like Apple, Microsoft, and Amazon declined. Investors responded to warnings of buying spree overheating by returning to an observant stance.
According to Bloomberg data, the record of rising 18 out of the last 22 trading days is rare, happening only eight times since 1980. Matt Maley of Miller Tabak analyzed, “A short-term overheating adjustment is inevitable but viewed as part of an adjustment, not a downward trend,” and added, “The possibility of re-breaking the all-time high remains valid.”
Solita Marcelli of UBS warned that “Various risks such as trade negotiations, economic data slowdowns, and fiscal deficit expansions are present, making short-term volatility inevitable.” JP Morgan evaluated that President Trump's tax reduction stance is putting pressure on supply and demand in the Treasury market and narrowing the Federal Reserve's response options.
By stock, Alphabet is being watched to see if it will recover leadership in the Artificial Intelligence (AI) field through the Google I/O developers conference this week, and Home Depot maintained its annual guidance despite increased sales in the US. Pfizer signed a $1.25 billion contract with a Chinese biotech company for the pre-payment of cancer drugs. BMW announced a $2.2 billion share repurchase, and Levi's decided to sell its Dockers brand. Victoria's Secret implemented defensive measures in the form of a 'poison pill' in response to the concentrated stock purchases of a particular shareholder.
In the cryptocurrency market, Bitcoin fell 0.7% to record $104,789, and Ethereum decreased 1.8% to $2475.85. West Texas Intermediate (WTI) crude oil in the US fell 0.5% to $62.36 per barrel, but gold surged 1.6% to $3281.66 per ounce, reflecting geopolitical risks and bond uncertainties.
In the foreign exchange market, while the dollar index was flat, the euro slightly rose to $1.1263, and the yen traded 0.2% higher against the dollar at 144.58 yen. European bond markets also saw yield increases. The German 10-year bond rose 2 bp to 2.61%, and the UK 10-year bond increased 3 bp to 4.70%.
Market experts stated that not only the Federal Reserve's policies but also US fiscal spending, tax reduction, and trade policies will act as significant variables in the Treasury and asset markets, emphasizing the need to maintain caution.