Profit-taking and institutional adjustments on Tuesday resulted in the Dow Jones Industrial Average falling 0.5% and the S&P 500 losing 0.1%. Both indices ended higher in May though.
The Nasdaq and Russell 2000, which are more heavily weighted toward mid- and small-cap stocks, closed higher Tuesday. It is thought that the companies that make up these indices will be less impacted by an interest rate hike since their products are generally made and consumed in the United States. Large-cap manufacturers, on the other hand, are more impacted by higher interest rates and a stronger U.S. dollar.
Some major events could change the complexion of the market. We have the Federal Reserve’s June 14-15 FOMC meeting, in which an interest rate hike will be considered, and the June 23 vote on the U.K.’s continued membership in the European Union. Another key event will be the OPEC meeting this week, which could determine crude oil production levels for the summer. What happens at these three events will most likely have the biggest influence on stocks in the near future.
Oil fell 0.5% to $49.10 a barrel on Tuesday, but finished up 6.9% for the month. Gold rose slightly to $1,214.80 an ounce on Tuesday, but was down 5.8% in May.
At Tuesday’s close, the Dow Jones Industrial Average fell 86 points to 17,787, the S&P 500 lost 2 points at 2,097, the Nasdaq gained 15 points at 4,948, and the Russell 2000 was up 4 points at 1,155.
The NYSE Composite’s primary exchange traded 1.5 billion shares with total volume of 4.2 billion. The Nasdaq crossed 2 billion shares. On the Big Board, advancers outpaced decliners by 1.2-to-1, and on the Nasdaq, advancers led by 1.3-to-1. Block trades on the NYSE increased to 6,239, up from 4,338 on Friday.
In May, the S&P 500’s 17-month moving average chart held the buy signal triggered in March. This is a positive long-term indicator, but we could see a test of the 17-month line at 2,042 again before the index breaks to a new high in late summer or early fall.
Conclusion
In the previous Daily Market Outlook, I discussed the S&P 500’s false breakdown in November and December, which showed how the extremely high volatility of the past several months can lead to overreactions.
On Tuesday, both the S&P 500 and Dow fell on high volume due to month-end “evening up.” We can therefore treat this high volume of the final day of the month as a non-event.
But, as mentioned, there are several meetings this month that could determine the near-term future of the markets.
The Federal Reserve’s June FOMC meeting should give us a clue as to when rates will be raised. Most bankers seem to think it will be in July, but the Fed may do nothing until fall. If that is the case, stocks could meander for the summer.
But the OPEC meeting this week could result in a nasty surprise. The wildfires in Canada and restricted production from South America have stymied OPEC’s plan to bankrupt smaller U.S. producers. So, my guess is OPEC will increase production again, putting pricing pressure back into the market. That would not be good for oil prices or the stock market.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
