Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Friday, 05/31” will be posted around 8:30am EDT, Friday.
THE GIST (“THE WHAT”)
The S&P 500 index struggled for direction but managed to rebound from a 12-week low, albeit with a choppy price action that was confined within key technical levels of 100 DMA and 200 DMA. Investors remain cautious with trade tensions intensifying in the background and Treasury yields flashing warning signs of an impending recession.
The index gained ground at the open but was pulled back sharply alongside tumbling Energy stocks. Finding support at the key technical level of 200 DMA (now at 2775.84), the index bounced off the day’s low of 2776.74. Erasing losses during the last hour of trading, the index managed to close the choppy session in green at 2788.86, up 5.84 points and gaining 0.21% over previous session’s close. Seven out of the eleven primary sectors participated in gains, with Real Estate and Technology sectors offsetting major weakness in Energy sector.
THE DETAILS (The “How & Why”):
Energy was the biggest drag on the index, closing 1.18% lower. Oil prices tumbled deeper into bear territory, hitting their lowest level since March 2019 after the EIA report indicated a record increase in domestic crude production last week to 12.3 million barrels a day. Cimarex Energy Co. led the sector losses with a 4.51% decline. Devon Energy Corp., Marathon Petroleum Corp., Halliburton Co and HollyFrontier Corp. all fell more than 3% each.
Meanwhile, nervous investors’ flight towards safety keeps pushing yields lower. The 10-year Treasury yield hit its lowest level in 20 months at 2.22% and the closely-watched yield spread between the 3-month Treasury bills and 10-year Treasury notes fell further into negative territory. The broader Financials sector was a notable decliner, down 0.45%. Interestingly, Utilities still remain under pressure for the fourth straight session despite falling yields.
On the economic data front, weekly jobless claims came in line with expectations at 215,000. Trade deficits widened slightly to $72.1 billion in the month of April. Meanwhile, U.S. GDP growth for the first quarter was revised down from 3.2% to 3.1%. Investors will be paying close attention to the personal spending and personal consumption expenditures reports, the Fed’s preferred inflation gauge due tomorrow morning for cues on the state of inflation in the economy.
Offsetting weakness in the Energy sectors were Real Estate, Technology and Consumer Discretionary sectors that gained some of the lost ground, up 0.65%, 0.60% and 0.51%, respectively. Key Technologies Inc. was the top gainer of the session, soaring 11.30% on beating earnings estimates.
Discount retailers Dollar General Corp. and Dollar General Inc. rose 7.16% and 3.14% on delivering stronger-than-expected quarterly earnings report. Health Care, Industrials and Consumer Staples all clawed back some of the recent losses, up 0.52%, 0.39% and 0.33%, respectively.