4:10pm: Volatility could be here to stay
The Dow closed Monday down 62 points, 0.2%, at 31,438, the Nasdaq Composite lost 96 points, 0.8%, to end at 11,512 and the S&P 500 shed 12 points, 0.3%, to 3,900.
Trading was volatile, as the benchmarks teetered around the flatline. The question is whether the frequent swings are here to stay, and that depends on inflation, according to Tom Tzitzouris, head of fixed income research at Strategas,
“From here, the expectation is probably once again that we’ve hit peak inflation, even if the rollover is very slow, and that financial markets should see reduced volatility into year-end,” Tzitzouris said, as reported by CNBC. “If we see another push higher in inflation, however, all bets are off and volatility should accelerate again.”
12.05pm: Wall Street mixed
US stocks were mixed at noon as investors digested the latest economic data around durable goods orders and pending home sales in May.
At midday, the Dow Jones Industrial Average was up 63 points at 31,563 points and the S&P 500 was up 7 points at 3,918 points.
The Nasdaq Composite had slipped 36 points at 11,572 points.
OANDA senior market analyst Craig Erlam said while investors were looking at current levels with keen interest that he remained skeptical about any bear-market rallies at this stage.
“There's perhaps some cautious optimism that the worst of the sell-off is behind us, although how often have people asked that question in recent months?” he said. “And it's not just a case of whether inflation has peaked, it's whether it will decelerate in a manner that doesn't require greater assistance from central banks which could push economies either into or deeper into recession.”
Meanwhile, pending home sales in May unexpectedly rose 0.7%, well above the market consensus of a decrease of 3.9%.
Pantheon Macroeconomics chief economist Ian Shepherdson described the increase as “an unsustainable blip given the calamity in the mortgage market.”
“We expected the seventh straight monthly decline in pending home sales, tracking the ongoing plunge in mortgage applications, so this tiny increase is a surprise,” he said. “Sales will fall much further over the next few months, and we see little prospect of activity bottoming before late fall.”
He noted that prospective buyers were currently facing the twin problems of much higher mortgage payments and the prospect of immediate capital loss on a leveraged asset. “That’s not an attractive proposition,” Shepherdson said.
10.45am: Proactive North America headlines:
Standard Uranium says first two drill holes on the Thunderbird trend at its Davidson River project have excited geologists
BANXA reveals series of initiatives designed to save around $10M in annual cost savings
Gevo provides sweeping update on strong finances and projects currently in process
Mountain Valley MD's parasite treatment Soluvec beats ivermectin in pre-clinical pharmacokinetic study
SPYR (OTCQB:SPYR) Technologies retains Integrity Media to tell its story as it rolls out its 'game-changer' acquisition GeoTraq
Steppe Gold anticipates 2Q gold production of around 10,400 ounces from its ATO mine in Mongolia
Gratomic provides drilling update and reveals assay results from its Capim Grosso graphite project in Brazil
Fobi AI (TSX-V:FOBI, OTCQB:FOBIF) launches Bevy Pass mobile wallet loyalty and rewards platform with partner Barnet Technologies
African Gold announces name change to Toubani Resources
Century Global Commodities appoints former Newfoundland premier Dwight Ball to its board of directors
Dalrada says DES clean energy subsidiary inks partnership deal with Banyan Infrastructure to boost ESG banking transparency
Alternus Energy signs agreements to buy additional 184MW solar PV in Poland
FansUnite Entertainment receives conditional approval to list its shares on the Toronto Stock Exchange
Canada Silver Cobalt Works posts remaining drill results from winter program at Graal discovery, Quebec
Numinus Wellness launches new visual brand identity
Binovi Technologies hires new software development team to further develop neuro-visual performance platform
XPhyto Therapeutics says director and founder Professor Dr Raimar Loebenberg receives leadership award from Canadian Society for Pharmaceutical Science
Agra Ventures says David Grand appointed as its new chief executive officer effective July 1, 2022
United Lithium has plenty of options to advance lithium production for the electric vehicle market
Infinity Stone Ventures (CSE:GEMS) inks letter of intent to option Galaxy pegmatite project from Quartier Minerals
9.35am: Gains extended
US stocks opened slightly higher on Monday as investor confidence remained uplifted after Friday’s rally.
At the open, the Dow Jones Industrial Average had added 34 points at 31,535 points.
The S&P 500 was up 11 points at 3,922 points and the Nasdaq Composite had gained 35 points at 11,635 points.
Meanwhile, the latest US durable goods orders data has shown growth is slowing but activity is holding up well for now in the face of prevailing economic concerns such as rising interest rates.
May durable goods orders were up 0.7%, coming in far higher than the market expectation of 0.1%. Orders ex-transportation also came in higher than expected at 0.7%, compared to the consensus forecast of 0.3%.
Pantheon Macroeconomics chief economist Ian Shepherdson said revisions were small, so the upside surprise was real and welcome.
“The gains in orders for autos and aircraft were smaller than we expected, but the core was solid and better than implied by surveys and the recent industrial production data,” he said.
He noted that, per business survey suggestions, the surge in energy prices triggered by the war in Ukraine had dampened capex plans, and higher interest rates would increasingly impede investment over the next few months.
“We would be surprised by an outright decline, though, given that firms are still cash-rich, in aggregate, the labor market is still very tight, and the backlog of capex - especially replacement - from the previous cycle is still enormous,” Shepherdson said.
6.30am: Fresh gains forecast
US stocks were expected to start the week higher on Monday, holding on to gains from last Friday’s rally driven in part by weaker energy prices and softening expectations for aggressive interest rate hikes in the coming months as weaker economic data point to slowing economic activities.
Two key data are due to be released before the market opens - US durable goods orders and pending home sales for May – which may help to keep the momentum going, as are expectations for a continued rebalancing of portfolios ahead of the quarter-end.
Futures for the Dow Jones Industrial Average rose 0.3% in pre-market trading, while those for the broader S&P 500 index added 0.4%, and contracts for the Nasdaq-100 were up 0.6%.
“A part of last week’s rally is explained by high volatility, and perhaps a quarterly rebalancing of portfolios, where investors bought more equities to keep the proportion of equities stable as the sharp decline in equity prices lead to a relatively underweight equities in portfolios,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, recapping the rally seen in major indices last Friday.
“But the size of the rebound remains worrying as a 3%-4% jump in stocks is a sign that the market’s volatility remains high, conditions are choppy, and gains may not last long,” she added.
Developments over the weekend in Ukraine, where Russian forces bombed Kiev, have heightened investors’ concerns as G7 nations are reportedly nearing a new agreement to cap the price of Russian oil, which could push oil prices higher and worsen the inflation situation.
“The (Russia-Ukraine) tensions have caused the current chaos in the global stock market, and it is one of the major reason for the soaring inflation,” said Naeem Aslam, chief market analyst at avatrade.com.
“In addition, many do believe that the worse is still to come, and this is because the soft commodity crisis hasn’t reaches its peak level, and we have not seen a real panic among governments and consumers about the shortage of the grain supply,” Aslam said, adding that he sees this scenario happening soon.
In energy markets, WTI crude oil futures gained 0.1% to $107.75 a barrel and Brent crude futures were up 0.4 % at $113.61.
Aslam said the path of least resistance for oil prices is “very much skewed to the upside in the short term” due to a lack of supply to meet demand.
“Any sell-off in the oil prices remain an opportunity for many traders who are always standing ready to bag bargains,” he added.
Contact the author at jon.hopkins@proactiveinvestors.com