What’s driving markets

Heading into the final day of the month, the bounce from recent lows appeared to be stalling.

Analysts said last week’s bounce was technically overdue, coming as the selloff that took the S&P 500 to the brink of a bear market on May 19 left the market stretched to the downside by several measures.

The move to the downside saw steep sector selloffs that ranged from -2.6% for consumer staples to 34.3% for consumer discretionary, while the percentage of subindustries trading below their 50- and 200-day moving averages were more than two standard deviations below their 27-year means, noted Sam Stovall, chief investment strategist at CFRA, in a note. The S&P 500 12-month forward earnings-per-share estimates declined to 16.8 times price — down 1.1% from its 20-plus year average and the lowest reading since April 2020.

“These extremes hinted quite loudly that, like the release of an overstretched rubber band, the market was primed for at least a short-term snapback,” Stovall said. “And snap it did…The only question remaining is whether this rally will extend or evaporate. We remain skeptical of this rally’s sustainability.”

Interest-rate policy will be in the spotlight with President Joe Biden set to meet Federal Reserve Chair Jerome Powell in the afternoon. In an op-ed in The Wall Street Journal, Biden said he would not seek to influence the Fed’s decisions.

A hawkish speech delivered Monday by Christopher Waller, a Fed governor, didn’t seem to help sentiment. Waller said he supports half percentage point interest rate increases until there are signs inflation is cooling toward its 2% target. The core reading of the Fed’s preferred inflation gauge was 4.9% in April.

The yield on the 10-year Treasury
TMUBMUSD10Y,
2.862%
rose 12 basis points to 2.87%.

Waller said the May employment and CPI reports will be key pieces of data “to get information about the continuing strength of the labor market and about the momentum in price increases.” The May jobs report is due on Friday, and the CPI report is set for release the following Friday.

In U.S. economic data Tuesday, the Conference Board’s index of consumer confidence fell slightly in May to 106.4 from 108.6, reflecting worries about high inflation and a slowdown in the economy. Economists polled by The Wall Street Journal had forecast the index to total 103.9.

“Spending plans are cooling but not plummeting as financial conditions tighten. This is exactly what Federal Reserve policy makers want to see,” said Jeffrey Roach, chief economist for LPL Financial, after the consumer-confidence reading.

“Buying plans for large ticket items such as autos and homes are holding steady, revealing a fairly stable consumer sector. The economy will most likely avoid a recession in the near term as the Fed successfully navigates a ‘softish’ landing,” Roach said.

U.S. home prices rose again in March even as higher mortgage rates began to bite, leaving prices at all-time highs. The S&P CoreLogic Case-Shiller 20-city price index was up a record 21.2% year over year while the federal government’s price tracker climbed 19% in the same span.

Salesforce
CRM,
-1.00%,
HP
HPQ,
+0.25%
and Victoria’s Secret
VSCO,
-0.59%
are expected to report earnings on Tuesday after the bell.

Oil futures jumped
CL.1,
+2.76%,
with the U.S. benchmark trading above $118 a barrel and near its highest since early March after the European Union reached a watered-down agreement that will partially ban imports of Russian crude oil, to be phased over several months.

Investors also are absorbing the news that Shanghai, China’s largest city, set plans to reopen from its COVID lockdown.

See: Watch for IPO-market revival after Labor Day, says NYSE executive

Companies in focus

• Shares of Yamana Gold AUY surged 16% after Gold Fields Ltd. ZA:GFI announced a $6.7 billion deal for the Canadian miner.

What other assets are doing

• The ICE U.S. Dollar Index
  DXY,
  +0.18%,
  a measure of the currency against a basket of six major rivals, rose 0.3%.

• Bitcoin
  BTCUSD,
  +1.17%
  rose 0.1% to trade above $31.700.

• The Stoxx Europe 600
  SXXP,
  -0.56%
  fell 0.5%, while London’s FTSE 100
  UKX,
  +0.20%
  was up 0.3%.

• The Shanghai Composite
  SHCOMP,
  +1.19%
  rose 1.2%, while the Hang Seng Index
  HSI,
  +1.38%
  rose 1.4% in Hong Kong and Japan’s Nikkei 225
  NIK,
  -0.33%
  edged down 0.3%.