Equities Close Lower Ahead of May’s Inflation Report

10 Jun 2021 · 3rd Party Analysis

Equities Close Lower Ahead of May’s Inflation Report

WRITTEN BY ThorFX

In Summary

  • Stocks slide on Wednesday, dragged by financials and industrials
  • Some meme stocks are pushed lower, while new names emerge

US equities finished the day in negative territory after a largely positive intraday move pushed the S&P500 to a session record. The main benchmarks were dragged lower by decreased investor appetite ahead of the widely anticipated consumer price report later today.

The Dow Jones Industrial Average ended Tuesday lower by 0.44%, or 152.68 points, to 34,447.14. The S&P500 slipped 0.18%, or 7.71 points, to 4,219.55, just 0.3% away from its May 7 record closing. The tech-centered Nasdaq Composite dropped modestly by 0.09%, or 13.16 points, to 13,911.75.

Reopening stocks suffered the most on Wednesday as the biggest losers were in the financial, industrial, and consumer sectors. There was, however, some green flashing across the board, particularly in tech stocks like Microsoft, up 0.40%, Apple, up 0.31%, and Amazon, up 0.52%.

The blue-chip Dow marked its third straight day of losses. Pre-market trading indicates a muted open later today with Dow futures and S&P futures barely positive, while Nasdaq futures are flatlining.

Wall Street stock gauges have been trading relatively subdued recently as market participants are hoping the latest inflation data will reveal whether it’s safe to bet on an economic recovery boosted by vast fiscal and monetary stimulus. Inflation is seen as a big threat to the current high valuation of the stock market, even more so, after April’s consumer price report which showed prices jumped 4.2% compared with the same month one year ago.

Inflation Fears Pervade the Equity Market

The risks of rising inflation spread to all sectors in the equity market. Inflation pressures could dent the confidence in the economic reopening and could also disrupt supply chains. In addition, the possibility of higher taxes weighs on investors’ risk-on approach to the market.

While the outlook for stocks is presently relatively uncertain, equity indexes are trading around all-time highs. Today’s consumer price report for May could either strengthen investors’ confidence in the rallying market or reaffirm their defensive stance toward the risky assets.

Meanwhile, the bond market calmed down yesterday. The yield on the 10-year Treasury note dipped below 1.5% for the first time in a month, and settled at 1.489%, down from 1.527% on Tuesday.

Shares in meme stocks were among the biggest tech decliners as their frothy valuations couldn’t convince more retail Reddit traders to pile into the trading frenzy. AMC stock tumbled 10.37% as the price per share settled below $50. Clover Health Investments tanked 23.61%, or $5.23, to $16.92. The steep decline in Clover Health’s share price followed after the stock gained 86% the previous day.

The retail trading army, which coordinates its moves on the social media Reddit, is now out-and-about seeking the next big bargain. While enthusiasm in some meme stocks is fading, new players are taking off. Clean Energy Fuels caught tailwinds yesterday and spiked 31.52% as the stock received a lot of attention

on the Reddit chat boards. Roughly 130 million shares of Clean Energy Fuels change hands yesterday, compared with a volume of under 20 million a day for the past 10 days.

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