TMajor U.S. stock indexes ended the first trading day of June on a mixed bag, as the previous session’s + 0.70% gain seen in the S&P 500 was wiped out after a tight test on its recent level history of 4,238 printed on May 7, it ended almost unchanged (-0.05%) at 4,202. In contrast, the Dow Jones Industrial Average and the small cap Russell 2000 gained respectively + 0.13% and +1, 14%.
On the positive side, cyclical / value stocks outperformed yesterday, as indicated by the performance of the 11 S&P sectors; Energy + 3.93%, Materials + 1.39%, Finances + 0.66% while Information Technologies lagged behind with a loss of -0.42%. Additionally, market insiders remained robust, such as more advancing NYSE stocks outperforming declining stocks significantly by a ratio of 2.6 and a ratio of 1.83 seen on the Nasdaq for its stocks in progress against declining stocks.
Overall, yesterday’s performance of the US stock market and the main stock market indices should not indicate a possible trend reversal of its medium-term and major uptrend phase but rather a continuation of the thematic reflationary / inflationary game which continues to outperform and tends to benefit cyclical / value stocks while deflationary beneficiaries such as innovative techs and ESG-related stocks take a back seat.
In addition, several economic news streams also bolstered the reflationary / inflationary themed game, an indication that economic growth is showing green hits after a year of sluggishness due to the Covid-19 crisis; The OECD has raised its global growth forecasts for 2021 and 2022 to 5.8% and 4.4%, from 5.6% and 4.0% respectively. The OPEC + ministerial meeting on oil ended with optimistic forecasts for global oil demand as the gradual recovery in economic growth remains intact.
In the forex market, the US dollar has remained weak as the US dollar index continues to trade below its declining 20-day moving average, which acts as an intermediate resistance at the 90.12 level despite improving 10-yield sovereign bond spreads between the United States and its counterparts such as German Bunds over the past four sessions since May 25. Therefore, the continued weakness of the US dollar appears to be due to adjustments in equity portfolio flows rather than a significant acceleration in inflationary pressures in the United States which may alter the current accommodative stance of the Fed.