Yahoo Finance‘Mag Seven’ Hit Stocks in Final Stretch of May: Markets Wrap

(Bloomberg) -- A rout in the world’s largest technology companies dragged down stocks, with the market trimming a monthly rally that was fueled by hopes that an inflation cooldown would lead to Federal Reserve rate cuts.
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The group of megacaps that includes powerhouses like Nvidia Corp. and Microsoft Corp. took a hit — and was set to halt a streak of five weeks of gains. Data from Goldman Sachs Group Inc.’s prime brokerage recently showed that hedge funds’ exposure to Big Tech is at an all-time high. The S&P 500’s most-influential group also came under pressure as results from some names like Dell Technologies Inc. and Salesforce Inc. failed to impress investors.
“Leaders to losers... for now,” said Dan Wantrobski at Janney Montgomery Scott. “We are seeing breaks of initial support in some leadership areas. Net-net we are still expecting a bumpy ride for US equities as we enter the month of June.”
Meantime, Treasuries headed toward their best month in 2024 as the core personal consumption expenditures price gauge came in line with estimates, while posting the smallest gain this year. What’s more, spending unexpectedly dropped. For a data-dependent Fed, the report was seen by traders as “not quite as bad”, “slightly constructive” and “marginally dovish.”
“While we don’t necessarily want to see a weakening consumer, softening retail spending should help stoke the flames for lower rates in the second half of 2024,” said Bret Kenwell at eToro. “We’re not there yet, but the inflation reports were a constructive first step.”
The S&P 500 briefly broke below 5,200, but was still poised for its biggest monthly gain since February. The Nasdaq 100 fell almost 1.5%. US 10-year yields fell four basis points to 4.51%. The dollar fluctuated.
Investors betting that technology behemoths will continue to fuel the rally in equities could be in for a rough ride when other sectors start to catch up, according to strategists at Bank of America Corp.
The outperformance of value over growth stocks as market breadth improves could be the next “pain trade” for investors, strategists including Michael Hartnett and Elyas Galou wrote in a note.
Other potential sore points on the horizon include a drop in US equities and a widening in investment-grade bond spreads, Galou said by email.