Stocks fell sharply on Wednesday as the market volatility indicator – the VIX index – surged, reflecting rising investor nervousness. All main stock indexes and eleven S&P 500 (SPX) sectors finished the day in the red, with futures signaling further decline at the end of a strong month. The indexes are still on the path to finish May on a high note, with the technology benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) at an advantage after hitting their all-time highs on Tuesday.
The pressures on equities – especially outside of the NVIDIA (NVDA)-led technology sector – have been building throughout the shortened trading week, as investors focused on Friday’s Core PCE report, the Fed’s preferred inflation gauge. The Federal Reserve has stressed the importance of receiving sustained confirmation that inflation is moving down to its target before cutting interest rates. With the PCE expected to continue showing slow downward progress, remaining considerably higher than the stated 2% target, markets now assign high probabilities to a single rate decrease this year.
Several other factors combined to take investor sentiment lower. Thus, weaker-than-expected Treasury note auctions sent yields sharply upwards, shaking demand for stocks that are trading way above their long-term average valuations.
Industrial-sector stocks were strongly taken down by a slide in airline stocks, induced by a losses from American Airlines (AAL) which cut its Q2 profit guidance. Meanwhile, technology stock futures flashed an even deeper red as Salesforce (CRM) tumbled after hours on lower-than-expected revenue guidance. UnitedHealth Group (UNH) weighed down on the Dow Jones Industrial Average (DJIA) after forecasting weaker performance for its Medicaid business.
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