US equities reclaims 3900 but remains negative on risk aversion

The S&P 500, the Dow Jones, and the Nasdaq recorded losses amidst a risk-aversion environment. US equities recovered some ground during the day but remain set to finish with losses, despite investors’ efforts of a last-hour rally. At the time of writing, the S&P 500, the Dow Jones Industrial, and the heavy-tech Nasdaq Composite record losses between 0.13% and 0.70% and sits at 3,904.92, 11,398.96 and 31,268.98, respectively.

Sector-wise, the gainers are Materials, Consumer Discretionary, and Energy, up 1.23%, 0.84%, and 0.69%, respectively. The worst performers are Consumer Staples, Financials, and Technology, falling 1.74%, 0.54%, and 0.50% each.

In the commodities complex, the US crude oil benchmark, WTI, is gaining 2.70%, trading at $112.00 a barrel, while precious metals like Gold (XAU/USD) is rallying 1.35%, exchanging hands at $1840.88 a troy ounce, helped by a softer US dollar.

The US Dollar Index is falling more than 1.50%, dragged down by falling US Treasury yields; gold rallied. Nothing is likely to stop the Fed from hiking as Kansas City Fed’s George said that the rough markets wouldn’t alter the rate hike plan.

Sentiment remains dismal, emphasized by the stagflation scenario surrounding the global economy. China’s coronavirus crisis continues as local outbreaks increase concerns of additional lockdowns. Also, high inflationary pressures have taken their toll on big US retailers, such as Walmart and Target, which expressed that their margins shrank due to elevated prices.

Fed officials have crossed the wires in the last couple of days, and most of them have expressed that inflation is “too high” and reiterated the posture of increasing the Federal Fund Rates (FFR) by 50-bps at the June meeting. The Kansas City Fed President Esther George said that a “rough week in the equity markets” would not change her view of hiking rates, while Philadelphia’s Fed Patrick Harker added that the US economy might have a few quarters of negative growth, but that is not what he is foreseeing.

The US dollar is further weakening in the week, more than 1.50%. The US Dollar Index, a gauge of the buck’s value, sits at 102.751, losing 1.11% on Thursday. The US 10-year Treasury yield extended its losses in the day, four basis points down from the open and is currently at 2.850%.