Stocks fell Monday as concern about the global economy and the path of rates sapped the strength of a blistering second-quarter rally. 

A decline of 1 per cent in Europe’s main equity gauge swept up almost every industry. Among the biggest individual movers, Sartorius AG slumped 15 per cent after issuing a bigger-than-expected profit warning. In Asia, disappointed hopes for further stimulus pushed down Chinese tech companies.

With the path of rates increasingly uncertain, traders are vacillating between the lure of the rally and concern it’s exhausted and that the market has become overbought.

Wall Street’s rally has now erased more than a year of Fed-induced losses, with stocks, volatility and the dollar shaking off the impact of 10 rate hikes. The S&P 500 index just capped a fifth straight week of gains and is now higher than it was the day the Federal Reserve kicked off its campaign. 

“Optimism, or maybe just squeezed pessimists, is perhaps the strongest theme in global markets right now,” Giles Gale, rates strategist at NatWest Markets, wrote in a note. “Inflation looks surprisingly well behaved despite the Fed’s weak protests.”

U.S. stock and bond markets are closed Monday for a holiday. Futures contracts on the S&P 500 and Nasdaq 100 dipped 0.1 per cent.

Looking ahead, Fed Chair Jerome Powell will give his semi-annual report to Congress on Wednesday. Federal Reserve Bank of St. Louis President James Bullard and his counterparts in New York and Chicago are also among this week’s speakers.

Policymakers at the Fed kept interest rates unchanged at their latest meeting but warned of more tightening ahead. The decision last week came with forecasts for higher borrowing costs of 5.6 per cent in 2023, implying two additional quarter-point rate hikes or one half-point increase before the end of the year.

“Markets are still pricing in a lower path of interest rates compared to the Federal Reserve’s dot plot,” said Janet Mui, head of market analysis at RBC Brewin Dolphin. “While we are close to peak rates, it is uncertain how long rates will stay high. Markets have a more dovish lens on that.”

Elsewhere, short-term borrowing costs in the UK climbed to 5 per cent for the first time since the global financial crisis amid concern the troubling inflation outlook could lead to more aggressive monetary tightening from policymakers.

Chinese tech companies fell, with Alibaba Group Holding Ltd, JD.com Inc. and Baidu Inc. all tumbling more than 3 per cent to drag the Hang Seng Tech index down as much as 2.9 per cent. 

Investors had been primed for China’s cabinet to possibly announce fresh stimulus after a meeting on Friday, but it stopped short of releasing any specific proposals. The lack of tangible evidence for support adds to worries over a slowing economy, unnerving investors who had bid up Chinese equities last week in the hope of a sweeping package.

Key events this week:

• U.S. Juneteenth holiday, Monday
• China loan prime rates, Tuesday
• U.S. housing starts, Tuesday
• Federal Reserve Bank of St. Louis President James Bullard speaks, Tuesday
• New York Fed President John Williams speaks, Tuesday
• Federal Reserve Chair Jerome Powell delivers semi-annual congressional testimony before the House Financial Services Committee, Wednesday
• Federal Reserve Bank of Chicago President Austan Goolsbee speaks, Wednesday
• Eurozone consumer confidence, Thursday
• Rate decisions in UK, Switzerland, Indonesia, Norway, Mexico, Philippines, Turkey, Thursday
• U.S. Conference Board leading index, initial jobless claims, current account, existing home sales, Thursday
• Federal Reserve Chair Jerome Powell delivers semi-annual testimony to Congress before the Senate Banking Committee, Thursday
• Cleveland Fed’s Loretta Mester speaks, Thursday
• Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
• Japan CPI, Friday
• UK S&P Global / CIPS UK Manufacturing PMI, Friday
• U.S. S&P Global Manufacturing PMI, Friday
• Federal Reserve Bank of St. Louis President James Bullard speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.1 per cent as of 4:08 p.m. New York time
• Futures on the Dow Jones Industrial Average fell 0.2 per cent
• The MSCI World index fell 0.3 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.2 per cent
• The euro fell 0.2 per cent to US$1.0918
• The British pound fell 0.3 per cent to US$1.2777
• The Japanese yen was little changed at 141.96 per dollar

Cryptocurrencies

• Bitcoin rose 1 per cent to US$26,731.25
• Ether fell 0.3 per cent to US$1,724.38

Bonds

• The yield on 10-year Treasuries was little changed at 3.76 per cent
• Germany’s 10-year yield advanced four basis points to 2.52 per cent
• Britain’s 10-year yield advanced eight basis points to 4.49 per cent

Commodities

• West Texas Intermediate crude fell 0.7 per cent to US$71.29 a barrel
• Gold futures fell 0.5 per cent to US$1,962.30 an ounce