Stocks Flip Higher in Seesaw Session; Bonds Gain

Stocks edged higher as investors assessed prospects for growth amid the latest signs of economic malaise from the US and China. Treasuries gained while the dollar slipped.

The S&P 500 bounced back to post modest gains, with more than half of the benchmark’s 11 major industry groups in the green.

The tech-heavy Nasdaq 100 fell amid declines in megacaps including Tesla Inc. and Amazon.com Inc., while the Dow Jones Industrial Average outperformed.

Data Monday showed New York state manufacturing activity unexpectedly contracted in May for the second time in three months, stoking concerns of slowing economic activity that may complicate the Federal Reserve’s policy path.

Adding to those growth concerns, New York City is preparing to hit a high Covid-transmission level in the coming days that would have it reconsidering mask requirements in public places. About 8% of people tested for Covid-19 over the last seven days have been positive.

Meanwhile, China’s industrial output and consumer spending hit the worst levels since the pandemic began, hurt by Covid lockdowns.

The risk of an economic downturn amid price pressures and rising borrowing costs remains the major worry for markets.

Goldman Sachs Group Inc. Senior Chairman Lloyd Blankfein urged companies and consumers to gird for a US recession, saying it’s a “very, very high risk.”

That said, while the U.S. market is pricing in 40% odds of a recession, history shows the S&P 500 tended to rally in the absence of the worst case, according to a study by UBS Group AG.

Market Commentary

“There’s still a lot of concerns. We got some disappointing data from China today,” Esty Dwek, chief investment officer at Flowbank, said on Bloomberg TV. “We just see that there’s a lack of buyers in this market. There’s still a lot of fear and so we probably have a little bit more to go on the downside.

“You’ve got investors pulling back from the market in the expectation that we’re going to have a recession,” David Donabedian, chief investment officer of CIBC Private Wealth Management, said by phone.

“It’s hard to, frankly, make a strong argument against that, the idea that we’ll have a recession. We know that that’s what Federal Reserve tightening produces most of the time, it’s a recession. And so you have to have a good answer to the question of why would this time be different, and it’s not that easy to come up with that answer, frankly,” Donabedian explained.

“With inflation showing little sign of letting up, the Fed is under pressure to accelerate the pace of tightening,” Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, said in a note. “This is increasingly problematic as the complicating factors from the Russia-Ukraine conflict and the China COVID response are also intensifying. All told, this suggests global growth may be decelerating more quickly than forecast.”

Company Updates

In corporate news, Twitter Inc. shares fell Monday, erasing all the gains the stock made since Elon Musk disclosed his stake in the social media platform.

JetBlue Airways Corp. made a hostile $3.3 billion cash bid for Spirit Airlines Inc., appealing directly to shareholders to prevail over a rival offer for the discount carrier.

Verizon Communications Inc. plans to raise prices on its wireless bills for the first time in two years.

McDonald’s Corp. said it will pull out of Russia after more than 30 years of operation in the country and will take a write-off of $1.2 billion to $1.4 billion for the move.

Performance by Asset Class

Cryptocurrencies dipped as the mood in stocks weakened. That took Bitcoin back to around the $30,000 level.

Stocks: The S&P 500 rose 0.2% as of 1:44 p.m. New York time. The Nasdaq 100 fell 0.5%. The Dow Jones Industrial Average rose 0.6%. The MSCI World index rose 0.2%.

Currencies: The Bloomberg Dollar Spot Index fell 0.2%. The euro was little changed at $1.0422. The British pound rose 0.1% to $1.2280. The Japanese yen was little changed at 129.24 per dollar.

Bonds: The yield on 10-year Treasuries declined four basis points to 2.88%. Germany’s 10-year yield declined one basis point to 0.94%. Britain’s 10-year yield declined one basis point to 1.73%.

Commodities: West Texas Intermediate crude rose 3.3% to $114.10 a barrel. Gold futures rose 0.3% to $1,813.60 an ounce.

(Image: Adobe Stock)

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