A tumultuous May for markets ended almost exactly where it began for stocks.
Released May 31, 2022
A turbulent May for markets ended almost exactly where it began for stocks, with a late trading day drop that sent the S&P 500 less than a point higher than a month ago. It was an ironic end to a month of rising volatility and raging debates about inflation, the Federal Reserve’s plan to curb it and the impact on the economy.
The S&P 500 fell 0.6% on Tuesday, taking its monthly return to virtually zero. During the month of May, the benchmark index rose more than 8% after falling as much as 20% from a record high, signaling a bear market.
10-year Treasury yields climbed 12 basis points to 2.85%, just below where the month started. West Texas Intermediate oil prices are little changed, up 10% this month. And bitcoin stayed above $31,000, down 17% in May.
Stocks started the day lower on fears inflation would prove more persistent, intensifying debate over how quickly central banks will hike interest rates. Eurozone consumer prices rose 8.1% in May to a record high from a year earlier. Meanwhile, WTI crude pared gains from a partial European Union ban on Russian oil. The dollar rose.
Fears that central bank rate hikes could plunge the economy into recession are keeping investors on the alert as rising food and energy costs put pressure on consumers. May saw near-unprecedented volatility in stocks as the S&P 500 plummeted more than 3% three times, ending its longest streak of weekly losses since 2001, only to spike by month-end.
The moves come amid skepticism about whether the market is near a bottom and as volatility remains elevated. Swaps show that traders have almost fully priced in two half-point rate hikes in June and July, with an equal chance of a third such hike in September.
“When you factor in the likelihood that earnings estimates will have to be cut significantly over the summer, it reinforces our view that the stock market needs to see lower lows before the final decline is in,” said Matt Maley, chief market strategist at Miller Tabak + Co.
Federal Reserve Chair Jerome Powell meets President Joe Biden in a rare Oval Office on Tuesday to discuss inflation ahead of US jobs numbers later this week. The meeting follows comments by Fed Governor Christopher Waller on Monday, who suggested the Fed should raise rates in half a percentage point increments until inflation returns to the central bank’s target.
“In times like these, investors need a crystal ball,” wrote LPL financial strategists Jeff Buchbinder and Ryan Detrick. “We fully appreciate how difficult it is to see the bull case for stocks right now and a retest of recent lows is certainly possible, but this week we lay out the bull case for the second half of the year. It starts with the Inflation.”
Among individual stock moves, Deutsche Bank AG slipped after the lender and its wealth management unit had their Frankfurt offices raided by police. Unilever Plc jumped when activist investor Nelson Peltz joined the board. And Chinese stocks listed in the US – including Alibaba Group Holding Ltd. — rose, bringing shares on course to erase monthly losses as easing measures in major cities and better-than-expected economic data calmed investors.
How will markets be affected by the Fed’s quantitative tightening? QT officially starts Wednesday and is the subject of this week’s MLIV Pulse poll.
Here are some important events to watch this week:
- The Federal Reserve is expected to start shrinking its $8.9 trillion balance sheet on Wednesday
- The Fed releases its Beige Book report on regional economic conditions on Wednesday
- New York Fed President John Williams and St. Louis Fed President James Bullard will speak at separate events Wednesday
- Virtual meeting of OPEC+ on Wednesday
- Cleveland Fed President Loretta Mester discusses the economic outlook on Thursday
- US jobs report from Friday
- The Food and Agriculture Organization of the United Nations releases its monthly food price index on Friday at a time of greatest concern about global supplies
Some of the key movements in the markets:
- The S&P 500 was down 0.6% at 4:05 p.m. New York time
- The Nasdaq 100 fell 0.3%
- The Dow Jones Industrial Average fell 0.7%
- The MSCI World Index fell 0.6%
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.4% to $1.0735
- The British pound fell 0.4% to $1.2604
- The Japanese yen fell 0.9% to 128.69 per dollar
- The 10-year government bond yield rose 12 basis points to 2.85%
- The 10-year German government bond yield rose seven basis points to 1.12%
- The 10-year UK government bond yield rose 11 basis points to 2.10%
- West Texas Intermediate Crude fell 0.1% to $114.94 a barrel
- Gold futures fell 1% to $1,839.10 an ounce
–With support from John Viljoen and Andreea Papuc.