U.S. stocks closed lower Monday, ending a modest rally on Wall Street that has lifted stocks higher in the face of persistent recession concerns heading into the final trading days of the first half of the year.
The S&P 500 had risen by around 6.7% since bottoming out early last week, taking the broadest benchmark of U.S. stocks back towards the 4,000 point mark as investors quietly ease back into global risk markets while eyeing the prospects of slower growth, faster inflation and central bank responses to both.
The so-called bear market rally has yet to gain full conviction on Wall Street, however, as stock funds saw their biggest outflow in nine weeks last week, according to data from the Bank of America "Flow Show" report, while Treasury bond yields continue to flash recession warnings heading into the final trading days of the the worst first half performance for stocks in five decades.
The yield gap between 10-year Treasury bonds and 2-year notes is now hovering at around 7 basis points, modestly wider than last week but still close enough to the inversion level that traders cite as a signal for near-term recession.
Benchmark 10-year notes were last seen 3 basis points higher on the session at 3.204% while 2-year notes were trading at 3.13% following a $46 billion auction of new paper.
Growth prospects were clipped overnight, as well, by a weaker-than-expected reading for profits generated by China's biggest industrial firms last month, which fell 6.5% from last year despite a rebound in activity from the country's Covid restrictions.
The Federal Reserve's inflation fight will likely resume its place at the forefront of Wall Street's focus this week, as well, as the PCE Price Index, is likely to show a modest deceleration of inflation pressures when data from the Fed's preferred gauge is published on Thursday.
At present, the CME Group's FedWatch tool is already indicating some pullback on bets for faster rate hikes, although a 75 basis point move in July is essentially priced-in by Wall Street.
Still, global equity benchmarks are moving higher again Monday, with Europe's region-wide Stoxx 600 closing 0.61% in the green in Frankfurt while Asia's MSCI ex-Japan benchmark gained 1.75%.
On Wall Street, the Dow Jones Industrial Average closed 64.4 points lower, or 0.2%, on the session while the S&P 500, which is down 18.21% for the year, dipped 11.6 points. The tech-focused Nasdaq fell 83 points as short-term Treasury yields jumped in the wake of the 2-year auction.
In other markets, oil prices traded higher following reports that the so-called G-7, a collective of the seven richest western democracies as well as Japan, are reportedly nearing an agreement to place a cap on the price of crude exports from Russia.
WTI crude futures for August delivery were marked $2.15 higher on the session at $109.77 each while Brent contracts for the same month, the global pricing benchmark, added $2.20 to trade at $115.32 per barrel.
Nike (NKE) shares 1.5% lower ahead of the sports apparel group's fourth quarter earnings after the close of trading.
Nike is expected to post earnings of 81 cents per share, down from 93 cents over the same period last year, on revenues of around $12.075 billion.
Digital World Acquisition Corp. (DWAC) , the bank-check company planning to merger with former President Donald Trump's nascent media company, fell 9.6% after it said that its directors have been subpoenaed by a Federal Grand Jury.
DWAC, which is also being investigated by the U.S. Securities and Exchange Commission with respect to its plans to merge with the former President's Trump Media & Technology Group, said the subpoenas were related to the SEC probe and issued by a panel sitting in the Southern District of New York.
