Stocks took an abrupt turn for the red to start the week Tuesday after last week’s hot streak. Indeed, the S&P 500 and Nasdaq Composite indices are down about 0.5% and 0.16% heading to the bell. So why are stocks down today?
Well, it seems good news is bad news when the Federal Reserve is involved.
Data released this morning shows that U.S. housing construction starts skyrocketed almost 22% in May, representing a 291,000-unit increase in starts, the largest since January 1990. The rebound in housing starts is seemingly a response to rejuvenated interest in real estate demand.
Some analysts believe that this could be a sign that the Fed’s rate-hike pause earlier this month may be shorter-lived than hoped. This is unfortunate as it suggests that housing is finally starting to shake off the Fed’s relentless rate-hike campaign over the past year and a half or so, which is a positive for the U.S. economy.
In a surprising twist of fate, the notion of the economy thriving may push the central bank back on the path of monetary tightening, a generally bearish indicator for equities.
“While housing starts data tend to be volatile and this figure may be revised down in coming months, the enormity of the increase suggests that builders are broadly expanding operations this summer,” noted Ben Ayers, senior economist at Nationwide.
Other Reasons Why Stocks Are Down Today
There are other reasons behind the dip in equities today. Some traders have noted today’s drop may just be a technical pullback after stocks’ bull run over the past five weeks. Indeed, Wall Street almost touched its highest level since spring 2022 last week off the back of the recent artificial intelligence (AI) wave. As such, today’s minor dip may simply be traders showing some hesitance before markets break through their next resistance level.
That said, there are other factors at play today. This includes a fall in energy stocks and oil costs as a result of concerns over the stability of the global economy. Energy stocks experienced the largest pullback today, slipping 2.3% today, the most among all 11 sectors of the S&P 500.
Additionally, markets may be responding to news out of China that the country’s central bank cut interest rates by less than some hoped, prompting a 1.5% drop in the Hong Kong stock market.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
