Were Traders Waiting for This Pullback?

Stocks just had their biggest pullback in months as the market worried about higher interest rates.

The S&P 500 fell 2.6 percent between Friday, May 29, and Friday, June 5. It was the sharpest weekly drop in a year and ended a streak of nine consecutive positive weeks. Technology, which has fueled most of the recent gains, led the pullback. 

Several economic reports beat estimates, potentially increasing odds of the Federal Reserve hiking interest rates. On Monday, the Institute for Supply Management's manufacturing index rose more than expected to a four-year high. Its price index remained above 80 for the second straight month -- something that last happened in May and June of 2022.

On Tuesday, the Labor Department's JOLTS report showed 7.6 million job openings in April. It was the highest reading since December and beat estimates by 785,000. The next day, ADP's private-sector payrolls report rose more than expected to the highest level since the beginning of last year. ISM's service sector index also surprised to the upside, with its price index at the highest level in almost four years.

Initial jobless claims were higher than forecast on Thursday. However, continuing claims fell more than expected and remain near two-year lows.

Then came the big number on Friday: May's nonfarm payrolls rose by 172,000 -- more than twice economists' projections. Totals for March and April were revised up by 85,000. 

Federal Reserve Hawks

Those numbers cemented perceptions of a strong U.S. economy and job market. It also reduced potential arguments for interest-rate cuts and bolstered hawkish views at the Federal Reserve.

"I am increasingly concerned that higher interest rates could be necessary later this year to fully restore price stability," Dallas Fed president Lorie Logan said on Wednesday. "Inflation is taking too long to return to the FOMC’s 2 percent target." She also said monetary policy was "accommodative" and "corporate earnings are going gangbusters."

Cleveland Fed President Beth Hammack made similar points, posting on LinkedIn that the economy enjoys "full employment" and "persistently high inflation is the bigger concern" than promoting job growth. Prices are "high and ... moving higher," she said. Hammack added that "if recent trends continue, it may soon be appropriate to act." 

Interest rates and monetary policy could remain a near-term focus with inflation data this week and the Fed meeting next week.

Tech Pullback

Technology stocks dropped 5.6 percent last week, their biggest decline since the tariff panic in April 2025. (Despite the slide, the sector is still having its best quarter in more than 26 years.) Consumer discretionaries and communications also fell as Amazon.com (AMZN), Tesla (TSLA), Ford Motor (F) and Meta Platforms (META) slid.

Ciena (CIEN) and Qualcomm (QCOM) led the downside in tech. Both had rallied more than 50 percent in the preceding three months thanks to AI fueling demand for communications and semiconductors.

Coinbase Global (COIN) followed Bitcoin and Ethereum prices lower. Cboe Global Markets (CBOE) fell on worries that crypto-based perpetual futures will disrupt the derivatives market.

Last week also saw downside in emerging markets, gold, silver and related mining stocks. Typically viewed as "weak dollar" assets, those fell as rate-hike expectations lifted the greenback. (Weak economic data in Europe also boosted the U.S. currency relative to the euro.)

Capital Raising

Alphabet (GOOGL) increased a planned stock sale from $80 billion to $85 billion. The Financial Times separately  reported that Meta Platforms (META) could issue tens of billions of dollars in new equity. Proceeds from both offerings would finance AI capital investment, which highlights the size and potential duration of the datacenter tech boom.

Speaking of AI spending, FactSet reported that technology is driving profit growth in the S&P 500. The firm added that Wall Street estimates for second-quarter earnings now see an increase of 21.7 percent, up from 18.7 percent at the end of March.

Charting the Market

While the S&P 500 fell sharply last week, some traders may view the pullback more as an opportunity than a bearish reversal.

First, the index held the bottom of its Keltner channel. That may suggest it was a normal fluctuation within an ascending range.

Second, prices stayed above the rising 50-day moving average. That could be consistent with an intermediate-term uptrend.

Third, the index remained above the mid-May low of 7,334. Is support holding?

Fourth, Wilder's Relative Strength Index (RSI) has returned to neutral after weeks near or above the overbought level at 70.

Turning to intermarket indicators, the 10-year Treasury yield and U.S. dollar index rose. While that can hurt risk appetite, neither broke out to new highs. Limited upside in either could support risk appetite.

The Week Ahead

This week features inflation data and Apple's (AAPL) Worldwide Developers Conference (WWDC). SpaceX's (SPCX) initial public offering -- the largest ever -- is expected later in the week.

AAPL CEO Tim Cook kicks off WWDC with a keynote speech at 1 p.m. ET today. 

Existing home sales are due tomorrow.

Wednesday features the consumer price index (CPI) inflation report at 8:30 a.m. ET. Crude-oil inventories follow later in the morning and Oracle (ORCL) reports earnings in the postmarket.

The producer price index (PPI) wholesale inflation report is on Thursday morning, along with initial jobless claims. Adobe (ADBE) and Lennar (LEN) issue results after the closing bell. 

Consumer sentiment is on Friday morning. Trading is also expected to begin in SPCX.