Stock Market Stumbles After Double Top Signal: Investor Anxiety Grows Over Potential Fed Rate Hike

The stock market was pulling back on Wednesday, with both the S&P 500 index and the Nasdaq 100 index failing to eclipse Monday's highs, forming a so-called technical double top which may indicate investors are starting to take some risk off the table ahead of next week's inflation data and FOMC Meeting.

Traders reassessed their expectations on Fed policy, and now assign a 35% chance of a rate hike in June, up from Tuesday's 21%. Furthermore, the probability of a rate hike by July is currently priced at nearly 70%.

Tech was the worst performing sector of the day, with the six S&P 500's heawyweights – Apple Inc. AAPL, Microsoft Corp. MSFT, Alphabet Inc. GOOG GOOGL, Amazon Inc. AMZN, Meta Platforms Inc. META and NVIDIA Corp. NVDA – all trading in the red.  

Cues From Wednesday’s Trading: 

The S&P 500 edged 0.2% lower, while blue-chip stocks in the Dow Jones rose 0.2%. 

The tech-heavy Nasdaq 100 was down 1.2%, while small caps in the Russell 2000 index climbed 1.6%, after rising 2.7% on Tuesday. 

Analyst Color:

The recent market advance has made LPL Financial chief technical strategist Adam Turnquist wary. While noting that stocks have had a nice run, the analyst said at higher prices, the bar for further gains gets higher.

“With stocks at higher valuations, high-quality bonds offering attractive yields, an S&P 500 Index with concentrated leadership facing technical resistance at 4,300, and an elevated risk of a late-2023 recession, we think it makes sense to be a bit careful here,” he said.

The analyst said he is neutral on equities.

Wednesday's Trading In Major US Equity ETFs:

In midday trading on Thursday, the SPDR S&P 500 ETF Trust SPY was 0.1% lower to $427.60, the SPDR Dow Jones Industrial Average ETF DIA rose 0.24% to $336.96 and the Invesco QQQ Trust QQQ fell 1.1% to $350.80, according to Benzinga Pro data.

Among U.S. equity sectors, the Technology Select Sector SPDR Fund XLK and the Communication Services Select Sector SPDR Fund XLC underperformed, falling 1% and 0.5%, respectively. 

Real Estate Select Sector SPDR Fund XLRE and the Utilities Select Sector SPDR Fund XLU were the best performers, both up 1.5%.  

Latest Economic Data:

The Mortgage Bankers Association revealed that the average contract interest rate for 30-year fixed-rate mortgages in the United States declined by 10 basis points to reach 6.81% in the week ending June 2. 

The Commerce Department reported that the trade deficit widened to a six-month high of $74.6 billion in April 2023, compared to a $60.6 billion deficit in March and market forecasts of a $75.2 billion deficit.

U.S. crude oil inventories went down by 0.451 million barrels in the week ending June 2, 2023, compared with market expectations of a 1.022 million injection, data from the EIA Petroleum Status Report showed.

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Stocks In Focus:

• Coinbase Global, Inc. COIN shares rose about 3.4%, slightly rebounding from a 12% drop a day earlier after the SEC's lawsuit against the cryptocurrency exchange.
• Warner Bros. Discovery, Inc. WBD soared 9% after the company said CNN Chief Executive and Chairman Chris Licht has stepped down, effective immediately.
• Campbell Soup Company CPB fell 7% after reporting weaker-than-expected revenues. 
• Yext, Inc. YEXT rallied over 41% following the release of the company’s quarterly results.

Commodities, Bonds, Other Global Equity Markets:

Crude oil rose 1.6%, with a barrel of WTI-grade crude rising to $72.60. The United States Oil Fund ETF USO was 1.5% higher to $64.70 per share.  

Treasury yields spiked, with the 10-year yield up by 13 basis points to 3.79% and the two-year yield up 11 basis points to 4.59%. The iShares 20+ Year Treasury Bond ETF TLT was 1.3% lower for the day. 

The U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP was flat.

The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was also unchanged at 1.0694.

European equity indices were lower. The SPDR DJ Euro STOXX 50 Etf  FEZ fell 0.4%. 

Gold fell 1% to $1,960/oz. The SPDR Gold Trust GLD was 1% lower to $180. Silver dipped 0.5% to $23.45, with the iShares Silver Trust SLV down 0.55% to $21.5 per unit. Bitcoin BTC/USD fell 3.3% to $26,338.

Staff writer Piero Cingari updated this report midday Wednesday. 

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