# U.S. stocks turn mostly lower as ISM reading underlines bottlenecks

What’s driving the market?

U.S. stocks joined in a global equity rally as markets in Asia reached their highest levels in a month and as those in Europe were near record highs.

But an early jump, which saw the S&P 500 trade near an all-time high, lost steam as survey-based data on manufacturing activity showed that shortages of supplies and labor mean firms are struggling to fill a surge in new orders for cars, computers, furniture, appliances and all sorts of goods.

The Institute for Supply Management said its manufacturing index rose to 61.2% in May from 60.7% in April. New orders paced the rise, while production and hiring slowed.

That’s a recipe for further inflation.

“The nation’s factories are humming, with strong demand for products supporting activity that would be even stronger if the resources were available to expand production,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors, in a note.

“That should improve in time as millions of unemployed Americans are incentivized to fill a flood of job openings. Even so, it will take some time for the bottlenecks in the system to be worked out. Until that is achieved, upward pressure on prices will likely continue.”

The economic recovery has raised inflation fears which helped push up Treasury yields Tuesday. Tech-related stocks, which are more sensitive to rising yields, were leading the way lower as equities weakened.

The U.S. data comes after China’s gauge of private-sector manufacturing activity, the Caixin/Markit Manufacturing Purchasing Managers’ Index, rose to 52, up from 51.9 in the previous month and marking the highest level since December. A reading of at least 50 indicates improving conditions.

Meanwhile, the IHS Markit/CIPS UK Manufacturing PMI rose to 65.6 in May from 60.9 in April, representing the highest reading since 1992.

The eurozone jobless rate fell in April, even as COVID-19 restrictions continued leading many businesses to reduce or suspend services.

May’s mostly muted equity moves suggest that investors are coming around to the notion that inflation will be transitory and that the Federal Reserve will patient in retracting stimulus measures that have been put in place to help support the economy amid coronavirus.

Uncertainty about how inflation will playout, however, has been a key source of market turbulence.

“Economic data have been erratic, and we expect more of the same as economies restart amid pent-up consumer demand and supply shortages,” wrote analysts at BlackRock, in a weekly outlook note. “We advocate looking through near-term market volatility and remain pro-risk, predicated on our belief that the Federal Reserve faces a very high bar to divert from its new policy framework to keep yields low.”

Meanwhile, COVID cases continued to decline in the U.S. as vaccination rates rise. More than 62% of adults have received at least one vaccine dose, the CDC reported Sunday. said. There were just 12,663 new cases on Saturday, according to the CDC, the lowest since March 2020.

Market participants will hear from two Fed speakers on Tuesday, ahead of the central bank’s media blackout period before a two-day policy meeting June 15-16.

Randal Quarles, the Fed’s vice chair for supervision, was scheduled to be interviewed by Politico at 10 a.m. and Fed Gov. Lael Brainard will delivered a speech to Economic Club of New York at 2 p.m. Eastern.

See: Life might feel more certain this summer, but betting on a calm stock market still could go wrong

Which companies are in focus?

• Shares of Cloudera Inc. CLDR, soared 24% after the data management and analytics software company disclosed a deal to be acquired for $16 a share in cash by funds advised by Clayton, Dubilier & Rice LLC and Kohlberg Kravis Roberts & Co. L.P. 
  KKR,
  +0.66%.

• LifeStance Health Group Inc. LFST, disclosed Tuesday that it has set terms of its initial public offering, in which the Arizona-based outpatient mental health company looks to raise up to $557.6 million and be valued at up to $6.35 billion. 

• AMC Entertainment Holdings Inc. AMC disclosed Tuesday that it sold 8.5 million shares of its common stock for $230.5 million to Mudrick Capital Management L.P. The share sale deal would represent a price of for AMC’s stock of $27.12 a share, which is 3.8% above Friday’s closing price of $26.12. Shares jumped more 13%.

• Chinese electric vehicle maker NIO NIO said May deliveries rose 95% year-over-year to 6,711 vehicles. Shares were up 7.3%.

How are other markets trading?

• The yield on the 10-year Treasury note
  TMUBMUSD10Y,
  1.636%
  rose 5.3 basis points to 1.635%. Yields and bond prices move in opposite directions.

• The ICE U.S. Dollar Index
  DXY,
  -0.35%,
  a measure of the currency against a basket of six major rivals, was down 0.3%.

• Oil futures jumped sharply as OPEC+ ministers met to discuss output plans, with the U.S. benchmark
  CL00,
  +3.51%
  rising more than 3%. Gold futures
  GC00,
  -0.33%
  turned lower as bond yields rose, falling 0.4% to just above $1,900 an ounce.

• In Europe, the pan-Continental Stoxx Europe 600 index
  SXXP,
  +0.81%
  rose 0.8%, while London’s FTSE 100
  UKX,
  +0.91%
  gained 0.9%.

• In Asia, the Shanghai Composite
  SHCOMP,
  +0.26%
  rose 0.3%, while Hong Kong’s Hang Seng Index
  HSI,
  +1.08%
  jumped 1.1% and Japan’s Nikkei 225
  NIK,
  -0.16%
  fell 0.2%.