Global Stocks Slip After Wall Street Rally Fizzles: Markets Wrap

Global stocks fell Monday, striking a more cautious note after Wall Street’s powerful second-quarter rally lost steam at the end of last week.

Chemical and construction firms paced declines in Europe, while banking stocks outperformed. Among the biggest individual movers, Sartorius AG slumped 15% after issuing a bigger-than-expected profit warning. In Asia, disappointed hopes for further stimulus pushed down Chinese tech companies.

Wall Street’s rally has now erased more than a year of Fed-induced losses, with stocks, volatility and the dollar shaking off the impact of 10 rate hikes. But with the path of rates increasingly uncertain, traders are vacillating between the lure of the rally and concerns it’s exhausted and the market has become overbought.

Despite the pressure of an $4.2 trillion options expiry at the end of last week, the S&P 500 index capped a fifth straight week of gains and is now higher than it was the day the Federal Reserve kicked off its campaign.

In its latest meeting last week, Fed kept interest rates unchanged but warned of more tightening ahead. In the past, pausing rate hikes for three months after such a run of interest rate hikes has boosted stock prices.

US stock and bond markets are closed Monday for a holiday. Futures contracts on the S&P 500 and Nasdaq 100 traded little changed.

Looking ahead, Fed Chair Jerome Powell will give his semi-annual report to Congress on Wednesday. Federal Reserve Bank of St. Louis President James Bullard and his counterparts in New York and Chicago are among this week’s speakers.

The S&P 500 index posted its mildest reaction on FOMC day in two years. Though it was the first in 11 meetings where policymakers held rates, they also lifted forecasts for higher borrowing costs of 5.6% in 2023, implying two additional quarter-point rate hikes or one half-point increase before the end of the year.

“Markets are still pricing in a lower path of interest rates compared to the Federal Reserve’s dot plot,” said Janet Mui, head of market analysis at RBC Brewin Dolphin. “While we are close to peak rates, it is uncertain how long rates will stay high. Markets have a more dovish lens on that.”

Meanwhile, Chinese tech companies fell with Alibaba Group Holding Ltd, JD.com Inc. and Baidu Inc. all tumbling more than 3% to drag the Hang Seng Tech index as much as 2.9% lower.

Reports covering China’s State Council meeting on Friday, chaired by Premier Li Qiang, were light on details about any potential stimulus or timing. The lack of tangible evidence for support adds to worries over a slowing economy, unnerving investors who had bid up Chinese equities last week in the hope of a sweeping package.

Key events this week:

US Juneteenth holiday, Monday
China loan prime rates, Tuesday
US housing starts, Tuesday
Federal Reserve Bank of St. Louis President James Bullard speaks, Tuesday
New York Fed President John Williams speaks, Tuesday
Federal Reserve Chair Jerome Powell delivers semi-annual congressional testimony before the House Financial Services Committee, Wednesday
Federal Reserve Bank of Chicago President Austan Goolsbee speaks, Wednesday
Eurozone consumer confidence, Thursday
Rate decisions in UK, Switzerland, Indonesia, Norway, Mexico, Philippines, Turkey, Thursday
US Conference Board leading index, initial jobless claims, current account, existing home sales, Thursday
Federal Reserve Chair Jerome Powell delivers semi-annual testimony to Congress before the Senate Banking Committee, Thursday
Cleveland Fed’s Loretta Mester speaks, Thursday
Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
Japan CPI, Friday
UK S&P Global / CIPS UK Manufacturing PMI, Friday
US S&P Global Manufacturing PMI, Friday
Federal Reserve Bank of St. Louis President James Bullard speaks, Friday