(Bloomberg) — Stocks lost traction after a rally to all-time highs spurred calls for a near-term pullback amid signs of buyer exhaustion.
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The S&P 500 fell after briefly topping 5,500 — while still remaining above a technical threshold that typically hints at an overstretched market. The high-flying tech group that has powered the bull market came under pressure, with the Nasdaq 100 down after a seven-day advance.
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“Bullish momentum remains intact for the S&P 500 and Nasdaq, but near-term overbought conditions coupled with deteriorating breadth make equities vulnerable to a pullback or correction,” said Craig Johnson at Piper Sandler.
Treasuries slid after coming very close to erasing this year’s losses — and despite economic data that mostly pointed to weakness. Federal Reserve Bank of Minneapolis President Neel Kashkari said the central bank will return inflation to the Fed’s 2% target, but estimated it will likely take a year or two to do so.
The S&P 500 edged lower, with Apple Inc. and Nvidia Corp. leading losses in megacaps. Qualcomm Inc. sank 5%. Wall Street also geared up for Friday’s quarterly “triple witching” — in which derivatives contracts tied to equities, index options and futures mature — compelling traders en masse to roll over their existing positions or to start new ones.
US 10-year yields rose four basis points to 4.26%. Traders are betting the Bank of England will cut rates in August after dovish signals from policymakers. The franc led losses in developed-world currencies as the Swiss National Bank lowered borrowing costs. The yen is poised to close at a 34-year low, ramping up the risk that Japan will once again step in to prop up the currency.
While the S&P 500 has set 31 new records this year, few of its members outside of technology have participated in the advance.
In the last three months, the 10 largest stocks in the index by market capitalization — mostly tech giants — have posted a median gain of 17%, while the rest have lost 1.3%, according to data compiled by Bloomberg Intelligence equity strategist Gillian Wolff.
To Nicholas Bohnsack at Strategas, equity valuations have shifted higher into the upper strata of their historical range where the forward return profile is not particularly robust for new money.
“Still, there appears little to put the domestic bull market into abeyance,” he said. “The economy, while showing some signs of softening momentum, is generally strong globally. Market performance remains strong and corporate profits expectations are broadening. We remain bullish ‘til the bill comes due.”
On the economic front, data came mostly on the soft side, with new home construction slumping to the slowest pace in four years and the Philadelphia Fed Index trailing estimates. US initial jobless claims were little changed.
A string of weaker-than-estimated data points has sent the US version of Citigroup’s Economic Surprise Index to the lowest since August 2022. The gauge measures the difference between actual releases and analyst expectations.
To Don Rissmiller at Strategas, until employment weakens significantly there remains a fundamental support for the economy, even with some pressure on rate-sensitive sectors such as housing.
“The US economy still looks robust enough currently to take an extended rate pause (mixed news is not weak news),” he noted. “We continue to monitor jobless claims closely for any signs that cracks are widening, however.”
Corporate Highlights:
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Kroger Co.’s executives flagged a dip in profit due to pressure in the supermarket operator’s pharmacies and an increase in promotions.
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Hertz Global Holdings Inc. is looking to raise $750 million in a two-part junk bond offering as it works to bolster its balance sheet after a misstep on its electric vehicle fleet.
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BP Plc agreed to take full control of its Brazilian ethanol joint venture with agribusiness giant Bunge Global SA while scaling back some new biofuel projects in the US and Europe.
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Honeywell International Inc. agreed to buy aerospace and defense company CAES Systems from private equity firm Advent International for $1.9 billion.
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Gilead Sciences Inc.’s experimental twice-yearly shot prevented 100% of HIV cases in women and adolescent girls in Africa, the first successful big trial of what’s hoped to become a powerful new drug regimen for fending off the virus.
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Vertex Pharmaceuticals Inc. has reached a pricing deal for its cystic fibrosis drugs with the National Health Service in England, ending a yearslong campaign by patients to secure access to the medicines.
Key events this week:
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Eurozone S&P Global Manufacturing PMI, S&P Global Services PMI, Friday
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US existing home sales, Conf. Board leading index, Friday
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Fed’s Thomas Barkin speaks, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 fell 0.3% as of 1:06 p.m. New York time
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The Nasdaq 100 fell 0.8%
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The Dow Jones Industrial Average rose 0.5%
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The MSCI World Index fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index rose 0.3%
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The euro fell 0.3% to $1.0709
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The British pound fell 0.4% to $1.2664
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The Japanese yen fell 0.5% to 158.90 per dollar
Cryptocurrencies
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Bitcoin was little changed at $64,812.77
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Ether fell 1.1% to $3,514.13
Bonds
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The yield on 10-year Treasuries advanced four basis points to 4.26%
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Germany’s 10-year yield advanced three basis points to 2.43%
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Britain’s 10-year yield declined one basis point to 4.06%
Commodities
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West Texas Intermediate crude rose 0.6% to $82.10 a barrel
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Spot gold rose 1.2% to $2,355.92 an ounce
This story was produced with the assistance of Bloomberg Automation.
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