Stock Market Today: Most Important Economic and Financial Events of Tuesday, May 24

Have U.S. Treasury Yields Topped Out?

Last Updated 4:20PM EST

Bonds rallied today as the 10-year U.S. Treasury yield fell to 2.76% while the 30-year Treasury yield fell below 3%. It’s possible that bond investors are pricing in the potential that yields have topped out. However, with inflation at over 8%, how could this be possible?

The answer might be related to Atlanta Federal Reserve President Raphael Bostic. Yesterday, Bostic commented how he believes that a rate hike pause may make sense in September.

This would come after the two 50-basis point rate hikes that are expected to occur over the next two meetings, which would take the Fed Funds Rate to 2%. Indeed, the Fed Funds Futures market is pricing in a rate of 1.94% at the end of September, meaning that investors currently believe there will be a pause.

However, this would only happen if inflation is lower in September. Therefore, until data comes in that actually confirms a downtrend in inflation, investors shouldn’t be too optimistic about Bostic’s statement.

Nonetheless, if the market continues to believe that the Federal Reserve will pause in September, it could give stocks a boost, as it will lower U.S. Treasury yields, making equities look more attractive.

Is Europe’s Economy Really as Strong as the ECB Thinks?

Last Updated 3:30PM EST

Christine Lagarde, President of the European Central Bank, struck a more dovish tone when announcing that the ECB is not in a hurry to raise interest rates for the European Union. She believes that inflation is being caused by the supply side rather than the demand side. As a result, she doesn’t see the need to panic.

Lagarde believes that the neutral rate is somewhere between 1% to 2%. The current rate is -0.5%, and she does not see the need for a 50 basis point hike. Instead, she prefers 25 basis point rate hikes in July and September, which would still be below neutral, at 0%.

It’s important to note that the ECB is still purchasing bonds, with the end of that program coming in June. Although Lagarde believes that the economy is very strong in Europe, her actions say otherwise.

Both Canada and the U.S. have already stopped buying bonds months ago. In addition, both have initiated 50 basis point rate hikes, outlining that there are more to come.

The fact that the ECB is still purchasing bonds while refusing to raise rates by more than 25 basis points doesn’t exactly indicate strength, especially since the war in Ukraine has had a much more significant impact on the European Union.

Is the Real Estate Market in Trouble?

Last Updated 12:25PM EST

As interest rates rise to combat inflation, many have become increasingly concerned about the real estate market. These fears may be justified if current trends continue.

The United States New Home Sales data was released today, and the numbers weren’t good. New Home Sales measures the number of single-family homes sold in the prior month (on an annualized basis).

Forecasters expected the number to come in at 750,000. Unfortunately, the actual number was only 591,000 – a huge miss. This marks the fourth straight month of declines. In addition, the current number is also much lower than last year’s figure, which was 863,000.

What makes this decline concerning is not the decline itself but rather the fact that it is occurring during a period of rising inventory. At the beginning of the year, the supply of houses was 5.6 months. However, in April 2022, the supply ballooned to nine months. In contrast, the supply in April 2021 was only 4.7 months.

If these two trends continue, it will put downward pressure on home prices. This will lead to homeowners feeling less wealthy, who will likely cut back on non-essential spending. As a result, this may cause the economy to slow down, going forward.

Russia Uses Food as a Weapon

Last Updated 10:10AM EST

The invasion of Ukraine by Russia has caused energy prices to spike dramatically while also disrupting the supply chain of food. As Europe’s breadbasket, Ukraine is responsible for producing 10% of the world’s wheat requirements. Together, Russia and Ukraine export 12% of the world’s total calories.

However, it appears that things may become even worse. Russia is deliberately bombing grain warehouses across Ukraine while blockading Ukrainian ships trying to export wheat and sunflowers seeds. In addition, the Russian army is confiscating machinery so that farmers can’t plant.

This will lead to hunger among countries that rely on exports to meet their caloric requirements while also increasing the cost of food. This will undoubtedly continue to add fuel to inflation fears, which will cause markets to continue pricing in the risk of a recession.

Major indices continue to slip in today’s market session, with the S&P 500 ETF (SPY) down 2% while the Nasdaq ETF (QQQ) is down 3.5%.

Stock Market Today: Most Important Economic and Financial Events of Tuesday, May 24

U.S. stock futures moved lower in the pre-market trading hours on Tuesday following a day of across-the-board rallying.

Futures contracts tied to the Dow Jones Industrial Average (DJIA) were down 0.85%, while those on the S&P 500 (SPX) inched 1.29% lower, as of 4:21 a.m. EST, Tuesday. Meanwhile, the Nasdaq 100 (NDX) futures fell short of the flatline by 1.93%.

Zoom Video (ZM) reported strong quarterly earnings results on Monday, along with lifted guidance, which sent the shares 6.11% higher in the after-hours trading Monday. Meanwhile, Snap (SNAP) shares dove about 28% after the social media company said that it expects to miss its own earnings and revenue targets in the current quarter, in addition to a possible hiring slowdown.

At the end of regular trading hours on Monday, the Dow had gained 1.98%, the S&P 500 was up 1.86%, and the Nasdaq 100 had advanced 1.68%. Looking at the pre-market trends, however, the relief rally on Monday may not be a sustainable one, bearing in mind the broader market weakness and uncertain economic outlook.

A rally in bank stocks on the back of rising interest rates contributed to Monday’s gains. VMware (VMW) shares also contributed with a 25% jump on the news of its possible purchase by Broadcom (AVGO).

Meanwhile, investors are awaiting an update from the Federal Reserve Chairman Jerome Powell on Tuesday.

Discover new investment ideas with data you can trust