S&P 500 Touches Monthly Gains Despite Profit Taking

US equities are modestly lower across the board on Wednesday, as investors take profit following the recent impressive run higher. Waning Russo-Ukraine optimism, robust US data that solidified Fed tightening expectations and yield curve inversions were all cited as worries.

The S&P 500 currently trades just above 4600 and on course to end the month 5.3% higher. US equities are modestly lower across the board on Wednesday, as investors take profit following the recent impressive run higher, with one eye on geopolitical developments and the outlook for Fed policy and the US economy.

The S&P 500, which rallied nearly as high as 4640 on Tuesday, is back to trading near the 4600 level, having dropped about 0.5% as optimism about Russo-Ukraine peace negotiations wanes somewhat after continued Russian assaults across Ukraine.

US data (March ADP jobs and final Q4 GDP and Core PCE inflation) was robust and deemed by investors as supportive of expectations for a 50 bps rate hike from the Fed in May. Expectations for faster Fed tightening has pushed key parts of the US yield curve towards inversion recently, a worry for investors as yield curve inversions have accurately forecasted recessions in the past.

Both of these have also been cited by investors as reasons for profit-taking and the modest downturn on Wednesday. The index is on course for its first negative session in five and only its third since 15 March. Indeed, since that date, the index has rallied a stunning roughly 9.5% and, as the month-end approaches, is on course to post a monthly gain of about 5.3%.

The S&P 500 is thus on course to post a quarterly loss of about 3.3%, the worst quarterly performance since H1 2020. But that masks the fact that the index was able to recover over 11.5% from earlier quarterly lows printed back in February in the 4120 area.

Looking at the other major US indices; the tech-heavy Nasdaq 100 index was last down about 0.7%, though remains robustly supported to the north of the 15,100 mark after the index hit its highest level since mid-January on Tuesday in the 15,200s.

On the week, the index still trades about 2.5% higher, as the month-end approaches, gains since the end of February stand at about 6.3%. That strong monthly gain means the Nasdaq 100 is on course to end the quarter with losses of about 7.0%, which isn’t bad considering the index was at one point down more than 20% on the quarter.

Finally, the Dow was last down about 0.2% and remains robustly supported above the 35,000 level, putting it on course to end the month with gains of about 3.9% and quarterly losses of about 5.0%.

The CBOE S&P 500 volatility index (or VIX) was last consolidating in the 19.00 area and near its lowest level since mid-January, having fallen precipitously in recent weeks from 37.50ish highs printed earlier this month.

Analysts have questioned the resilience of the broad stock market and apparent complacency of the VIX (which is back below its long-run average of 20) in the face of such elevated risks pertaining to geopolitics, Fed (and central bank) policy and inflation.