US Markets

Stocks close lower but Nasdaq posts 7-month winning streak

Key Points
  • The Dow, S&P and Nasdaq all closed lower on Wednesday after financials dropped 0.8 percent.
  • Financials were pressured by concerns that U.S. inflation wasn't increasing fast enough.
  • Still, the Nasdaq notched its seventh straight monthly gain.
Major indexes close lower as financials pressured by inflation concerns
Major indexes close lower as financials pressured by inflation concerns

U.S. equities fell on Wednesday, the last trading day of May, as a drop in the financials sector pressured stocks.

The Dow Jones industrial average fell about 20 points, with Goldman Sachs contributing the most losses. The S&P 500 fell 0.05 percent, with financials falling 0.8 percent to lead decliners.

The Nasdaq composite dropped 0.1 percent.

Crit Thomas, global market strategist at Touchstone Investments, said there are concerns the Federal Reserve may not be able to raise interest rates twice more, as it had previously forecast.

"A lot of people assumed they'd raise in June and September, but now I'm hearing it may be June and December. A lot of things are getting pushed back," Thomas said. Also, "Treasurys are suggesting a much different environment" than stocks.

Treasury yields have fallen sharply from where they began trading in 2017. On Wednesday, the benchmark 10-year yield hovered near 2.19 percent; it began the year near 2.5 percent.

Komal Sri-Kumar, president of Sri-Kumar Global Strategies, said the pullback in equities on Wednesday and Tuesday is reflective of "a confluence of unfavorable factors."

"There is little indication that the US economy will reach its 3% growth this year, reform of health care and taxes remains a dream, and there are no projects as destinations to accept a surge in infrastructure spending," he said. "Inflation figures continue to run well below the Fed's targets as we found out earlier this week."

Also raising concerns about inflation was the Fed's Beige Book — a summary of economic conditions in the U.S. by Federal Reserve district — which revealed "some districts noted falling prices for certain final goods, including groceries, apparel and autos." The Beige Book was released Wednesday afternoon.

A trader works on the floor of the New York Stock Exchange (NYSE).
Lucas Jackson | Reuters

Nevertheless, the Dow, S&P and Nasdaq were all on track to post monthly gains. The tech-heavy Nasdaq gained 2.5 in May and notched a seven-month winning streak, its longest since 2013. The index also hit a record high shortly after the open.

"We're getting to the point where money keeps chasing money," said Quincy Krosby, chief market strategist at Prudential Financial. "You have technology doing well, but you also have utilities doing well."

Companies in the utility sector sell essentials such as electricity and water, and are typically seen as safer investments. At the close on Wednesday, utilities had risen 10.1 percent year to date. Those gains, however, pale in comparison to tech's performance in 2017, rising 19.6 percent.

"What's interesting about this market is this is all happening amid a backdrop of uncertainty around the Trump agenda," said Prudential's Krosby.

The prospects for the Trump administration implementing pro-growth policies —such as tax reform, deregulation and infrastructure spending — have come into question recently as President Donald Trump's White House tries to put out several fires.

Dow, S&P and Nasdaq in May

Source: FactSet

Trump returned from his first trip overseas to deal with the fallout from reports that Jared Kushner, his son-in-law and a top adviser, discussed the potential to set up a "secret and secure communications channel" between the Trump transition team and the Kremlin.

Multiple news organizations also reported Wednesday Trump was expected to pull out of the Paris climate agreement. In a tweet, Trump said he would announce his decision on the accord "over the next few days."

I will be announcing my decision on the Paris Accord over the next few days. MAKE AMERICA GREAT AGAIN!

"The longer the [Trump] agenda drags out, the more it will have a negative impact on the market," said Jeff Carbone, managing partner of Cornerstone Financial Partners.

Major U.S. Indexes

The Dow Jones industrial average declined 20.82 points, or 0.1 percent, to close at 21,008.65, with Goldman Sachs leading decliners and Pfizer outperfoming.

The dipped 1.11 points, or 0.05 percent, to end at 2,411.80, with financials leading four sectors lower and utilities the best performer.

The Nasdaq pulled back 4.67 points, or 0.08 percent, to close at 6,198.52.

Advancers and decliners were about even at the New York Stock Exchange, with an exchange volume of 1.449 billion and a composite volume of 4.497 billion at the close.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 10.4.

On tap this week:

7:30 p.m. San Francisco Fed President John Williams


May vehicle sales

Earnings: Dollar General, Lululemon Athletica, VMWare, Broadcom, Workday, Five Below, Yext, Cooper Cos, Express, Ciena, Mobileye

8:15 a.m. ADP employment

8:30 a.m. Initial claims

8:30 a.m. Productivity and costs

9:45 a.m. Manufacturing PMI

10:00 a.m. ISM manufacturing

10:00 a.m. Construction spending


Earnings: Hovnanian

8:30 a.m. Employment

8:30 a.m. International trade