S&P500

Correction underway on May 23

Snapshot of major US stock indexes on Thursday: Dow -1.4%, NASDAQ +0.3%, S&P 500 0%, S&P 500 at 5,842, range 5,400–6,200.

Thursday's session began on an uncertain note, with some nervous tension in the Treasury market following news that the House of Representatives passed the reconciliation bill — a budget measure — early in the morning by a party-line vote of 215–214. Among other things, the bill raises the SALT deduction cap from $10,000 to $40,000, moves the Medicaid work requirement start date from 2029 to December 2026, and increases the debt ceiling by $4 trillion.

The Treasury Department estimates that this will boost long-term GDP by 0.6% and add $3.3 trillion to the deficit over the next 10 years. A reflexive sell-off in the Treasury market pushed the 10-year yield to 4.63% and the 30-year yield to 5.15%. These moves caused some additional weakness in equity futures, but the market began to rebound after the weekly jobless claims report at 8:30 a.m. ET showed an increase of 36,000 in continuing claims to 1.903 million for the week ending May 10.

Yields later retreated after the release of April's existing home sales report on 10:00 a.m. ET, which showed the slowest annual sales pace for the month (4.00 million) since 2009. By the time the Treasury cash session ended at 2:00 p.m. ET, the 10-year yield had settled at 4.55%, while the 30-year yield fell to 5.06%. This improvement coincided with a 0.4% rise in the US dollar index to 99.91 and helped stabilize the stock market, which had started the session on a softer note.

The market recovery was driven by large-cap and growth stocks such as Alphabet (GOOG 171.98, +1.92, +1.1%), NVIDIA (NVDA 132.83, +1.03, +0.8%), and Snowflake (SNOW 203.18, +24.06, +13.4%), all of which reported earnings and encouraging outlooks, demonstrating relative strength. The major stock indices fluctuated with modest gains, most of which were lost in a wave of selling during the last 30 minutes of trading.

The consumer discretionary (+0.6%), communication services (+0.3%), and information technology (+0.1%) sectors — all heavy in large-cap stocks — were the only S&P sectors to finish in positive territory. The industrial sector was flat, while the remaining seven sectors posted losses ranging from 0.1% (materials and financials) to 1.4% (utilities).

Year-to-date performance:

• DJIA: -1.6%
• S&P 500: -0.7%
• Nasdaq: -2.0%
• S&P 400: -4.4%
• Russell 2000: -8.3%

Economic calendar on Thursday:

Initial jobless claims for the week ending May 17 fell by 2,000 to 227,000 (consensus: 232,000), while continuing claims for the week ending May 10 rose by 36,000 to 1.903 million.

The key takeaway: Initial claims remain stable at levels well below those typically associated with recession. Moreover, this report covers the survey period for May's employment data and supports expectations for continued labor market strength.

S&P Global US Manufacturing PMI (Preliminary for May): 52.3 (previous: 50.2)

S&P Global Services PMI (Preliminary for May): 52.3 (previous: 50.8)

Existing home sales: Down 0.5% month-over-month in April to a seasonally adjusted annual rate of 4.00 million (consensus: 4.15 million), down from 4.02 million in March. Year-over-year, sales fell 2.0%.

Key takeaway: The median price of existing homes hit an April record of $414,000, highlighting affordability constraints as both home prices and mortgage rates rise.

Energy market Brent crude is trading at $64.30 sideways.

Conclusion The US stock market remains in a correction phase. It makes sense to plan long positions in baby steps, but another wave of downside is likely.