S&P 500 Spikes in Final 20 Minutes of US Trading: Markets Wrap

(Bloomberg) — A renewed bout of volatility gripped US stocks in the final stretch of May, with dip buying pushing the market higher amid a rotation between technology and other industries.

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In a late-day comeback, the S&P 500 rose almost 1% Friday to notch its best month since February. The gauge had fallen almost as much earlier in the session, dragged down by megacaps. Investors betting tech giants will continue to power gains could be in for a rough ride when other sectors start to catch up, according to strategists at Bank of America Corp. — who said the outperformance of value over growth as market breadth improves could be the next “pain trade.”

“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 extended gains at the end of their best month in 2024 as the core personal consumption expenditures price gauge met estimates, while posting the smallest increase this year. What’s more, spending unexpectedly dropped. For a data-dependent Federal Reserve, 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 closed above that level — as every major group but technology advanced. The Dow Jones Industrial Average of blue chips rose 1.5% — the most since November. The Nasdaq 100 finished flat after dropping almost 2% Friday. The tech-heavy measure posted its best month in 2024.

US 10-year yields fell five basis points to 4.4985%. The dollar was little changed Friday, but saw its first monthly loss since December.

Matt Maley at Miller Tabak says that usually when we get some “rotation” in the stock market, that’s viewed as a positive development. However, since the rotation between tech and everything else has gone in both directions over the past two weeks, he views it as a negative development.

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“In other words, the kind of ‘rotation’ we’ve seen recently can be viewed as ‘churning,” he said. “This is not negative in-and-by-itself, but when it comes after a nice rally, it tends to indicate that the advance is becoming tired. Thus, it is frequently followed by some sort of a pullback — even if it’s only a mild one.”

Technology shares now appear overextended, suggesting a correction may be on the horizon, according to Fawad Razaqzada at City Index and Forex.com.

“After months of substantial gains and no new bullish catalysts, a correction wouldn’t be surprising,” he said.

Hedge funds’ exposure to US technology behemoths hit a record high following Nvidia Corp.’s estimate-thumping earnings report this month, according to a recent report from Goldman Sachs Group Inc.’s prime…