U.S. equities mostly moved lower on Tuesday after the long Memorial Day weekend, but finished off of their worst levels. Trading was quiet as investors look ahead to Friday’s critical nonfarm payrolls report and what it will mean for the odds of a possible June interest rate hike from the Federal Reserve.
Although futures initially traded higher overnight, markets were spooked by polls showing higher-than-expected support by British voters to leave the European Union.
In the end, the Dow Jones Industrial Average lost 0.5%, the S&P 500 dropped 0.1%, the Nasdaq Composite gained 0.3% and the Russell 2000 finished the day with a 0.4% gain.
Treasury bonds were stronger, the dollar was higher, gold gained a fraction and crude oil lost 0.7% to close at $48.99 a barrel after UAE’s oil minister said he was happy with the state of the oil market, kicking off what’s likely to be a surge of comments on energy heading into Thursday’s meeting of the OPEC oil cartel.
Defensive utility stocks led the way with a 0.6% gain while energy stocks were the laggards, down 0.6%, as oil was hit. Sodastream International Ltd (NASDAQ:SODA) gained 6.2% after announcing the launch of its new home beer system, the Beer Bar, which uses “beer concentrate” and adds carbonation. The system is being launched initially in Germany and Switzerland, so we’ll see if the Europeans give the taste a passing grade.
Monsanto Company (NYSE:MON) gained 2.7% on reports Bayer could increase its offer for the company to $135 per share from the rejected $122 per share offer.
Apple Inc. (NASDAQ:AAPL) lost 0.5% on reports, simmering for months, that the iPhone product update cycle is set to slow.
On the economic front, consumer spending rose a percent in April, beating the consensus estimate for a 0.6% gain and confirming a strong retail sales report (but standing in contrast to some weak earnings reports from the retail sector). The result was the highest rate of increase since August 2009 driven by ongoing strength in the labor market. Real spending was up 0.6% in the best gain since February 2014.
Regional manufacturing data was disappointing, with the Chicago PMI dropping into contractionary territory along with the Dallas Fed’s manufacturing survey, which hit its lowest level in a year.
Overall, the tone of trading was very technical with an end-of-day surge managing to push the Dow into the green for May and keeping the index above its 50-day moving average. But amid narrow breadth and souring sentiment, as the Dow contends with an epic three-year resistance range near 18,000, stocks are looking vulnerable as the economy all but demands the Federal Reserve hike rates again in a few weeks — something that’s sure to deliver another shock, as it did back in December, to liquidity-addicted markets.
Keep an eye on the U.S. dollar, which is likely to surge on confirmation another rate hike is coming — pushing everything from commodities to crude oil and emerging market currencies at risk. The U.S. Dollar Index Bullish Fund (NYSEARCA:UUP) has been recommended to Edge subscribers in anticipation of this.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
