Equities decline after positive inflation response

May 31

US stock indices were drifting lower ahead of Friday’s key Core PCE inflation update. On Thursday, the mid-cap domestically focused Russell 2000 had bucked a negative trend across the major indices. This was another indication that investors are shifting some money out of many of the growth stocks that have led this year’s rally, and into value stocks which look comparatively cheaper. Just under a fortnight ago, the Dow broke above 40,000 to hit a fresh all-time high. It has struggled ever since, and on Thursday came close to falling back below 38,000, an overall decline of 5% in two weeks. After Thursday’s close, it was Dow component Salesforce that was largely responsible for the underperformance thanks to disappointing quarterly results. But this kind of divergence between the major indices has been a feature of this earnings season. The S&P 500 and NASDAQ 100 have also lost ground recently but have only fallen around 2.5% each from their record highs. Both have benefited from having NVIDIA as a constituent, reaping the rewards from the chip giant’s rally following its stunning quarterly results on 22nd May. Friday was the last trading session of the month, and despite some recent weakness, May has been positive overall. Investors are keeping a close eye on US Treasury yields which rose sharply early last week. Ahead of Friday’s inflation release, they steadied at higher levels with the yield on the 10-year note trading around 4.56%, down from 4.62% on Thursday. All the major US stock indices got a boost following the inflation release. But there was a sell-off in the major stock indices midway through the session, as sentiment began to sour again. As things stand, it could be a disappointing end to the month.