S&P 500 Pares Drop Amid Gains in Defensive Stocks: Markets Wrap

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(Bloomberg) — Stocks pared losses with defensive stocks catching bids, as investors assessed the latest signs of economic malaise from the US and China. Treasuries gained, while the dollar retreated.

The S&P 500 traded off session lows, with sectors including consumer stables, health care, utilities and energy advancing. The tech-heavy Nasdaq 100 underperformed major benchmarks. 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. 

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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.” Traders remain wary of calling a bottom for equities despite a 17% drop in global shares this year, with Morgan Stanley warning that any bounce in US stocks would be a bear-market rally and more declines lie ahead.

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Read more: Williams Downplays Worsening Market Liquidity as Fed Tightens

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.””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.”

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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.

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

What to watch this week:

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Fed Chair Jerome Powell among slate of Fed speakers TuesdayReserve Bank of Australia releases minutes of its May policy meeting TuesdayG-7 finance ministers and central bankers meeting WednesdayEurozone, UK CPI WednesdayPhiladelphia Fed President Patrick Harker speaks WednesdayChina loan prime rates Friday

Some of the main moves in markets:

Stocks

The S&P 500 fell 0.1% as of 12:08 p.m. New York timeThe Nasdaq 100 fell 0.6%The Dow Jones Industrial Average rose 0.1%The Stoxx Europe 600 was little changedThe MSCI World index was little changed

Currencies

The Bloomberg Dollar Spot Index fell 0.2%The euro was little changed at $1.0420The British pound rose 0.1% to $1.2278The Japanese yen was little changed at 129.16 per dollar

Bonds

The yield on 10-year Treasuries declined six basis points to 2.86%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 2.1% to $112.86 a barrelGold futures rose 0.2% to $1,812.50 an ounce

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