In Retreat. The main U.S. stock indexes closed slightly in the red on Wednesday. Energy stocks were worst-performing sector, dragged down by slumping oil prices, while utilities rose as uncertainties drove investors to safer corners. Further combative language from President Donald Trump and intensified protests in Hong Kong have also spooked the market. Hong Kong’s Hang Seng Index fell 1.7% for the day. In today’s After the Bell, we…
- look at the latest consumer price data in May;
- wonder if the futures market is overly confident about rate cuts;
- and check on the tumble of oil prices after a strong inventory report.
No Inflation in Sight
Stocks continue to stay in the red on Wednesday. The Dow Jones Industrial Average fell 43.68 points, or 0.17%, to close at 26,004.83. The S&P 500 lost 5.88 points, or 0.20%, to end at 2879.84, and the Nasdaq Composite dropped 29.85 points, or 0.38%, to close at 7792.72.
Price pressure remains muted in the past month. The consumer-price index (CPI) increased 0.1% in May from the previous month, in line with expectations and up 1.8% from the year-earlier period. Service sector inflation also increased a moderate 0.1% to stand at 2.5% higher than a year ago.
“Overall May saw generally muted price gains but no obvious deflationary impulse,” wrote Michael Shaoul of Marketfield Asset Management, “If this were to be repeated for a number of months both headline and core CPI would track lower, but thus far this looks much more like the shallow dips seen in a year like 2012 or 2013 than the 2014/15 deflationary lurch lower.”
The slowing price gains echoes a group of other economic data that could feed into the Federal Reserve’s decision to ramp up monetary stimulation later this year. The futures market is now betting on multiple reductions in the Fed’s main interest-rate target by the end of 2019. The mounting expectations have pushed the Treasury yields to their lowest level in two and a half years, while lifting the S&P 500 index—a proxy of the stock market—to only 2% off its record highs.
Still, Barron’s cautions that investors shouldn’t overly rely on futures traders’ visions. The futures market was just as certain late last year that multiple rate increases were ahead, although the economic environment isn’t dramatically different from then. Investors chasing lower bond yields could be putting themselves at risk for price losses that could quickly wipe out the meager annual coupon income of little more than 2% in a matter of days. The Federal Open Market Committee’s June meeting—scheduled for next Tuesday and Wednesday—is shaping up to be an interesting one to watch.
Oil prices fell after new data showed that U.S. oil supplies continue to build up. The Energy Information Administration said in its weekly status report that crude-oil inventories increased by 2.2 million barrels last week compared with the prior week, and supplies are now about 8% higher than the five-year average.
The Organization of the Petroleum Exporting Countries (OPEC) seems unlikely to expand production cuts, while the U.S.-China trade war could cause global economic growth—and oil demand—to slow. West Texas oil futures slumped 4.0% to settle at $51.14 per barrel, while Brent crude fell 3.7% to $59.97 per barrel, the first time it’s below $60 since early January.
The Hot Stock
The Biggest Loser
Western Digital stock (WDC) fell 5.7% to $36.24, near the hard-drive maker’s 52-week intraday low of $33.83, amid general weakness in the tech sector, particularly semiconductor stocks.
Write to Evie Liu at firstname.lastname@example.org