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U.S. Stocks Pull Back Tuesday as Market Rally Pauses

Hannah Maio

Jun 20, 2023

U.S. Stocks Pull Back Tuesday as Market Rally Pauses

U.S. stocks dipped on Tuesday to kick off a short week of trading, stalling a rally that has seen indexes climb to their highest levels of the year.

The S&P 500 fell 0.5 %. The Dow Jones Industrial Average shed more than 200 points, down 0.7%. The Nasdaq Composite edged 0.2% lower.The major indexes have marched higher in recent weeks as enthusiasm around artificial intelligence sent investors flocking to shares of megacap tech stocks. The tech-heavy Nasdaq Composite is coming off its eighth consecutive weekly gain, its longest winning streak since 2019. The S&P 500 rose for five straight weeks, its longest stretch since 2021.“The markets have become a little bit extended from a valuation and sentiment perspective,” said Dave Grecsek, managing director in investment strategy and research at Aspiriant. 

Investors have turned optimistic about stocks. Bullish sentiment is at the highest level since November 2021, according to the latest American Association of Individual Investors survey. As a contrarian indicator, high levels of optimism among investors could signal a decline in stocks ahead.

The S&P 500 is up 14% this year, trading at about 19 times projected earnings over the next 12 months, according to FactSet. That is up from a multiple of roughly 17 at the beginning of the year and higher than the five-year average of 18.6. Market participants often use the ratio of price to earnings as a gauge for whether stocks appear cheap or expensive. 

In economic data, U.S. housing starts for May came in higher than expected, driven by both single-family and multifamily projects. Shares of home builders rose, with PulteGroup adding 1.9% and D.R. Horton gaining 1.6%.

The strong housing-market indicator is the latest signal showing the U.S. economy remains robust even as the Federal Reserve attempts to quell inflation through aggressive interest-rate increases. Fed officials held interest rates steady last week after 10 consecutive increases, but signaled they were prepared to raise rates next month if the economy and inflation don’t cool more.

“We keep expecting a recession, but all of the indicators are pointing towards a very slow crawl out of the inflation spiral,” said Victoria Bills, chief investment strategist at Banrion Capital Management. “Inflation is going to continue to be very sticky.”

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