State of the Stock Market

U.S. stocks edged lower as major indexes pared recent gains that have come amid milder expectations for Federal Reserve interest-rate increases.
The S&P 500 opened higher, then turned lower, trading down about 0.2% Monday. The Dow Jones Industrial Average faded 0.1%. The technology-focused Nasdaq Composite Index dropped 0.4%. Markets are trying to hold the gains from a rally that drove the S&P 500 to its largest one-day percentage gain in two years on Friday. Weaker-than-expected U.S. economic data have caused investors to reassess their expectations for a blistering pace of monetary-policy tightening from the Federal Reserve.
The Fed’s plans to raise rates and tame inflation have sparked volatility in global markets this year and earlier this month sent the S&P 500 into a bear market, or a 20% drop from a recent peak.
But recent reports have indicated that the U.S. economy—and potentially inflation—is beginning to cool off. The latest evidence came Friday as the University of Michigan revised lower its June reading of inflation expectations over the next five to 10 years—to 3.1% from 3.3%.
U.S. stock futures had registered larger gains earlier in their session, but the rises softened after data showed that durable-goods orders for May had risen more than expected.
“Every good macroeconomic news is interpreted as bad market news,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers in Geneva. “If we keep seeing strong growth, strong inflation, then the Fed and the ECB will hike rates and we will enter a recession.”
In the near-term, he said stocks are likely to get additional support this week as investors rebalance portfolios ahead of Thursday, which marks the end of the second quarter.

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