Why is the stock market down today? Dow slips, oil prices rise, Alibaba jumps.

Tomorrow is a new day and the start of a new month, one that has historically been the best for stock market gains.

May was not about gains or losses. The S&P 500 ended the month essentially flat, although its last day was circled in red. A spike in oil prices, a response to Europe’s decision to impose a partial ban on Russian crude, weighed on the index.

The loss – the


S&P500

ended down 0.6% – was disappointing, especially after the index snapped a losing streak just before the Memorial Day long weekend.

The


Dow Jones Industrial Average

also closed lower on Tuesday, at 223 points, or 0.7%. And T


Nasdaq Compound

fell 0.4%.

Better days should be ahead, if history tells us anything. After the S&P 500 plunge in May, June saw an average rise of 1.2%, according to Dow Jones Market Data. For the rest of the year, the index posted an average increase of 3.4%.

Turning to Tuesday’s trading, the majority of stocks were feeling some pain. The


Invesco S&P 500 Equal Weight

The exchange-traded fund (ticker: RSP), which equally weights each stock in the index and therefore shows the performance of the average stock, fell 0.9%.

The price of oil initially jumped more than 3% to just over $119 a barrel, a level it hadn’t seen since early March when it became clear Russia was launching a full invasion. from Ukraine. The move comes after the European Union said it would impose an oil embargo on Russia, which would include the vast majority of Russian oil imports by the end of the year. Oil exports by pipeline, in particular, will continue.

Oil’s gain then moderated, bringing the price back to $115, but the initial rise was apparently enough to prompt many stocks to sell. Oil is still up nearly double digits in percentage terms for the month.

Rising oil prices could spell trouble for the stock market. If the price of oil remains high, this could push up inflation slightly. High inflation has already been a problem as businesses have seen their costs rise and profit margins fall, forcing them to raise prices, a threat to consumer demand. The latest US inflation reading showed that the rate of price increases is falling and rising oil prices may hamper progress.

“Soaring energy prices [are] putting a cloud over hopes for peak inflation,” wrote Louis Navellier, founder of Navellier & Associates.

The other problem is that the Federal Reserve is trying to fight inflation by raising short-term interest rates, a move that risks hurting economic growth. The Fed has hinted recently that it may slow the pace of rate hikes as the economy slows, so markets don’t want to see evidence that the pace of rate hikes will be faster.

The Fed’s task becomes especially difficult if oil prices are high enough to disrupt consumer spending. Higher inflation traditionally makes the Fed more likely to raise rates, which hurts demand. But if the rise in oil is already hurting demand and, on top of that, the Fed is raising rates fairly quickly, many will fear that a recession is imminent.

“Rising oil prices can push the economy into recession,” said Ed Yardeni, founder of Yardeni Research. “Do they [the Fed] do you want to make things worse? »

As if to reinforce this point, Fed Governor Christopher Waller has said he is prepared to raise rates above the so-called neutral rate if it means bringing inflation back towards 2%. “Waller got the better of the week of respite that stock and bond markets had last week,” wrote Andrew Brenner of NatAlliance Securities.

Additionally, worries about inflation, the Fed, oil prices, etc. – so-called macro factors – are likely to have a greater impact on daily stock movements now that the earnings season is over. Indeed, investors will have to guess at the impact of these factors on corporate earnings over the coming months, rather than asking companies to tell them how these forces are affecting them.

“Macro cross-currents remain high and uncertainty about the path of inflation, politics and growth is high,” wrote Dennis DeBusschere, founder of 22VResearch. “For now, that means…market volatility related to major macroeconomic releases and Fed meetings.”

The good news is that the pain in the broader market this year seems to be easing, overall. Admittedly, the market is down on Tuesday, but the drop does not seem worrying. The S&P 500 is still well above its intraday low for the year, which it hit on May 20. More buyers seem to be returning to the market. “Strong market internals have generated several ‘magnitude push’ signals that should open our minds to the fact that equities are building foundations,” wrote John Kolovos, chief technical strategist at Macro Risk Advisors.

One such strong signal: the majority of S&P 500 stocks are just beginning to rally to key levels. Just before markets open, about 86% of stocks in the index are above their 20-day moving averages, according to Instinet. This means that most stocks are trading at higher price levels as the market becomes slightly more confident in future gains.

But one thing is clear for now: the stock market is not out of the woods yet. The indices are still down double digits in percentage terms for the year and are still sensitive to worrying macroeconomic developments.

Outside the United States, China has begun to lift some Covid restrictions, helping the


Shanghai composite

gaining 1.2%, while Tokyo’s Nikkei 225 ended down 0.3%. The pan-European


Stoxx 600

fell 0.7%.

Five stocks in motion on Tuesday:

The easing of China’s Covid-19 restrictions led to a rally in Chinese stocks, including a number of US-listed Chinese tech companies.

Ali Baba

(ticker: BABA) jumped 2.8%, with an e-commerce counterpart

JD.com

(JD) 4.6% higher. Electric vehicle manufacturer

NIO

(NIO) increased by 5.2%.

Unilever

(UL) jumped 9.9%, after the consumer products company announced it had appointed billionaire investor Nelson Peltz as a non-executive director and confirmed that Trian Fund Management held a stake of around 1.5%. % in the group.

Focus on video communications

(ZM) slipped 2.7% even after being upgraded from underperforming to outperforming at Daiwa Securities.

Bob Doll of Crossmark Global Investments explains how many more stocks need to fall before they bottom, while Dana Peterson of the Conference Board gives an overview of the May jobs report.

Write to Jack Denton at [email protected] and Jacob Sonenshine at [email protected]

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