On Tuesday, the first trading day of the week, stocks fell as the market took a breather following a rally that drove it to levels not seen in over a year. The Dow Jones Industrial Average fell by 200 points, or 0.58%, the S&P 500 slid 0.42%, and the Nasdaq Composite declined 0.25%. Markets were closed on Monday due to the Juneteenth holiday.
Art Hogan, chief market strategist at B. Riley Financial, acknowledged the significant run that the market had experienced but stated that the market had to find credible reasons to continue to grind higher against the forces of negativity that still linger around potential recession and the potential for the Fed to remain rigorous against inflation.
Decliners outpaced advancers on the New York Stock Exchange 2 to 1 on Tuesday. Energy was the biggest laggard in the S&P 500, with the sector falling more than 1%. Meanwhile, Intel, Nike and Boeing dragged on the Dow, each down by more than 3%. In contrast, homebuilders outperformed following a stronger-than-expected housing report. PulteGroup, D.R. Horton and Lennar were each higher by more than 1%. Elsewhere, Nvidia also bucked the trend, up more than 1% while the major indexes sagged.
Investors are coming off of a strong week, with the S&P 500 hitting its highest level since April 2022. The S&P 500 and the Nasdaq Composite posted their best weekly performances since March, with the broad-market benchmark rising 2.6% and the tech-heavy index adding 3.25%. It was also the S&P 500’s fifth positive week in a row — a first since November 2021 — and the Nasdaq’s eighth consecutive positive week, a feat it previously accomplished in 2019.
Investors were receptive toward the central bank’s decision to skip a June rate hike last week. Federal Reserve Chairman Jerome Powell told a press conference on Wednesday that the central bank has yet to make a decision on policy ahead of the July meeting. However, policymakers are forecasting two more quarter-point rate increases later this year. The decision to skip a hike in June broke the Fed’s streak of ten consecutive interest rate increases.
Despite Powell’s insistence that future Fed policy will remain data dependent, stocks have been on an upswing. In the week ending June 14, investor bullishness rose to 45.2%, up from 27.4% several weeks ago, according to the American Association of Individual Investors. That’s the highest level since November 2021.
Wall Street is trying to gauge how last week’s strong market sentiment will hold up in a shortened trading week that is light on economic data. Mike Wilson, chief U.S. equity strategist at Morgan Stanley, wrote in a note on Tuesday that they believe equity markets are as stretched as they can get with market participants wary of missing a potential new bull market.
Investors absorbed May U.S. housing starts data that topped estimates. There were 1.63 million starts last month, higher than the 1.39 million housing starts expected by economists polled by Dow Jones.
In earnings, investors will look toward a quarterly report from shipping giant FedEx on Tuesday after the closing bell.
In summary, stocks fell on Tuesday following a significant rally that pushed the market to levels not seen in over a year. Investors are coming off of a strong week, and while they were receptive to the central bank’s decision to skip a June rate hike, Wall Street is trying to gauge how the market sentiment will hold up in a shortened trading week light on economic data.