S&P 500, Nasdaq close lower as traders cash in on latest megacap rally

Yesterday may have been a day of correction but today turned into a day of outright profit-taking after the recent strong megacap rally ahead of more inflation and Fed news next week.  On the inflation front, consumer prices are expected to be down slightly to show inflation continues to ease if ever slowly. But today’s rate hikes from Canada has dampened optimism about a Fed rate pause next week and the odds for a pause in just one day have shrunk from 80% yesterday to 69% today.  The good news is that today’s VIX is the lowest in more than three years suggesting that investors are not that concerned.  Volume was about 11.9 billion. 

S&P 500, Nasdaq close lower as traders cash in on latest megacap rally

By Shubham Batra, Shristi Achar A and David Carnevali

Wed June 7, 2023  4:36 PM

DJ: 33,573.28  +10.42         NAS: 13,276.42  +46.99        S&P: 4,283.85  +10.06     6/6

DJ: 33,665.02  +91.74         NAS: 13,104.90  -171.52       S&P: 4,267.52  -16.33      6/7

June 7 (Reuters) - The S&P 500 and Nasdaq closed in negative territory on Wednesday as investors took profits after a months-long megacap stocks run and ahead of key economic and policy events next week.  The small-cap index Russell 2000 (.RUT) climbed 1.78% as investors kept moving away from megagap and growth stocks after their strong gains.  "Over the past week, we've seen a pretty dramatic outperformance of small caps relative to large caps," said Paul Baiocchi, investment firm SS&C ALPS Advisors chief ETF strategist. "We're seeing that persist here today."  U.S. inflation data is expected to show consumer prices eased slightly in May from the previous month but with elevated core prices.

Weighing on stocks, the two-year U.S. Treasury yield and benchmark 10-year yield increased after the Bank of Canada raised interest rates, adding to investor jitters about the Federal Reserve's next U.S. interest rate decision.  Money market participants now see a 69% chance that the U.S. central bank will skip raising interest rates in its June meeting but will hike in July, down from nearly 77% earlier, according to the CME's Fedwatch tool.

Recently, U.S. shares have been boosted by a megacap stocks rally and a stronger-than-expected earnings season, with the S&P 500 (.SPX) up almost 20% from its October 2022 lows.  Some analysts expect profit-taking soon in big tech and other major growth stocks.  Meanwhile, CBOE Volatility Index (.VIX) hit the lowest close since Feb. 14, 2020.

Wells Fargo raised the price target on Netflix (NFLX.O) shares to $500 from $400, the highest on Wall Street, according to Refinitiv. The streaming company ticked 0.12% higher on the news.  Energy index (.SPNY) rose 2.65% after oil prices edged higher, while the KBW Regional Banking Index (.KRX) closed at the highest level since March 29.

The Dow Jones Industrial Average (.DJI) rose 91.74 points, or 0.27%, to 33,665.02, the S&P 500 (.SPX) lost 16.33 points, or 0.38%, to 4,267.52 and the Nasdaq Composite (.IXIC) dropped 171.52 points, or 1.29%, to 13,104.90.

Yext Inc soared 38.44% after the New York-based online marketing firm raised its annual earnings forecast.  Campbell Soup (CPB.N) fell 8.91% after the packaged food maker posted a lower fiscal third-quarter gross margin, dented by high commodity and freight costs.  Coinbase shares (COIN.O) advanced 3.20% the day after they hit a seven-month low, as the company's CEO reassured customers that their funds were safe and blasted the U.S. Securities and Exchange Commission over its lawsuit. On Tuesday, the SEC sued the largest U.S. crypto exchange, accusing it of operating illegally, without having first registered with regulator.  Cathie Wood's Ark Invest bought 419,324 shares of Coinbase on Tuesday.

Advancing issues outnumbered declining ones on the NYSE by a 1.58-to-1 ratio; on Nasdaq, a 1.27-to-1 ratio favored advancers.  The S&P 500 posted 22 new 52-week highs and no new lows; the Nasdaq Composite recorded 122 new highs and 40 new lows. 

There was no volume data in this report but, per the CBOE, about 11.9 billion shares were traded.