Stocks Fall, Treasuries Gain As Investors Await Powell Congressional Hearings: What's Driving Markets

Stocks were falling on Tuesday as investors await remarks from several Federal Reserve officials this week and more clarity from Fed Chair Jerome Powell in his testimony before the Congress on Wednesday and Thursday.

Meanwhile, U.S. Treasuries rallied, with yields dropping by about 10 basis points across the curve, signaling a rising risk-aversion momentum among traders. President Joe Biden will meet in San Francisco on Tuesday with a group of technology experts to discuss artificial intelligence and potential legislation governing the new technology.

Elsewhere, the China State Council made no mention of specific economic stimulus measures, and the Chinese central bank dropped lending rates less than expected, causing widespread losses in U.S.-listed Chinese shares.

Cues from Tuesday’s Trading:

Both the S&P 500 and the Dow Jones Industrial Average slipped about 0.4% on the day, while the tech-heavy Nasdaq 100 held broadly flat. Small caps in the Russell 2000 were the weakest link, down 0.5%.

U.S. Indices’ Performance on Tuesday

Analyst Color:

A decline in volatility bodes well for the market, said LPL chief technical strategist Adam Turnquist.

"Evidence of a regime shift from high to low implied volatility is building," the analyst said referring to the CBOE Volatility Index, or VIX, which recently fell to a multi-year low of 14.5 as of June 15.

This has placed the index in the fourth quintile group after spending most of last year at above-average levels.

Turnquist noted that historically, periods of high volatility are followed by periods of low volatility, especially during the transition from a bear to a bull market. "While high implied volatility has historically produced the highest average S&P 500 returns, the standard deviation around these returns is also relatively high," he said.

"Periods of low volatility have historically generated above-average returns with less dispersion."

Tuesday’s Trading In Major U.S. Equity ETFs: In midday trading on Tuesday, the SPDR S&P 500 ETF Trust SPY was 0.4% lower to $437.8, the SPDR Dow Jones Industrial Average ETF DIA fell 0.54% to $341.10 and the Invesco QQQ Trust QQQ was 0.2% lower to $367.14, according to Benzinga Pro data.

Ten of the 11 S&P 500 sectors fell for the session, with the sole exception being the Consumer Discretionary Select Sector SPDR Fund XLY, which rose 0.4%. The Energy Select Sector SPDR Fund XLK was the underperformer, down by 3.5%, followed by the  Real Estate Select Sector SPDR Fund XLRE, down 1.9%.

Latest Economic Data:

The Commerce Department reported that housing starts surprisingly increased 21.7% month over month in May 2023 to a seasonally adjusted annualized rate of 1.631 million, the highest level since April 2022 and much exceeding predictions of 1.4 million.

Building permits grew by 5.2 percent to a seasonally adjusted annual rate of 1.491 million in May 2023, breaking two consecutive months of drops and exceeding market forecasts of 1.42 million.

See also: How To Trade Futures

Stocks In Focus:

• U.S.-listed Chinese shares were all weaker on Tuesday: PDD Holdings Inc. PDD fell nearly 8%, JD.com Inc. JD fell 7.4%, NIO Inc. NIO fell 1.3%.
• Alibaba Group Holding Limited BABA plummeted nearly 5% after the company announced that co-founder Joe Tsai will take over as chairman and Daniel Zhang will move over to assume the responsibility of the cloud computing business. He is also being replaced as CEO by Eddie Wu, chairman of Taobao and Tmall online commerce divisions.
• Virgin Galactic Holdings, Inc. SPCE rose 22% boosted by plans for first commercial flight and erasing last Friday’s losses.
• FedEx Corp. FDX and La-Z-Boy, Inc. LZB are the key names that report earnings after the market close.

Commodities, Bonds, Other Global Equity Markets:

Crude oil fell 1.2%, with a barrel of WTI-grade crude trading at $70.60. The United States Oil Fund ETF USO was 1.5% lower to $63.31 per share.  

Treasury yields fell, with the 10-year yield down by 11 basis points to 3.71% and the two-year yield down 8 basis points to 4.67%. The iShares 20+ Year Treasury Bond ETF TLT was 0.9% higher for the day. 

The dollar was slightly higher, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, up 0.2%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was flat at 1.0905.

All European equity indices closed in the red. The SPDR DJ Euro STOXX 50 ETF FEZ fell 2.95%. 

Gold eased 0.6% to $1,937/oz. The SPDR Gold Trust GLD was 0.9% lower to $180. Silver tumbled 3% to $23.20, with the iShares Silver Trust SLV down 3.92% to $21.31 per share. Bitcoin BTC/USD rose 2.2% to $27,458.

Staff writer Piero Cingari updated this report midday Tuesday. 

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Photo: International Monetary Fund on Flickr