ASX set to drop as Wall Street slides to close a messy May

US stocks are in negative territory in late trade, as Wall Street nears the end of a tumultuous month, bruised by worries about a possible recession, inflation and rising interest rates.

The S&P 500 was down 0.6 per cent in late trade, after briefly erasing all of an earlier drop of 1.3 per cent during the morning. The Dow Jones Industrial Average was down 0.6 per cent while the Nasdaq composite has shed 0.4 per cent. Both came back from earlier losses of at least 1.4 per cent. The Australian sharemarket is set to fall, with futures at 5.04am AEST pointing to a drop of 33 points, or 0.5 per cent, at the open.

Wall Street is set to close out May with more losses.Credit:AP

Such swings should perhaps be no surprise given Wall Street’s action this month, amid some of the wildest trading since the early days of the pandemic. The S&P 500 is on track for a gain of around 0.1 per cent for May, which would bring it 13.8 per cent below its record set early this year. But the slight move for the month belies sharp lurches down and up that shook investors along the way.

Through mid-May, the S&P 500 tumbled to seven straight losing weeks for its longest such streak since the dot-com bubble was deflating two decades ago. Slowing data on the US economy heightened worries that high inflation will force the Federal Reserve to raise interest rates so aggressively that it will cause a recession.

Some high-profile retailers also said inflation is eating into their profits, adding more urgency to the concerns. They all combined to bring Wall Street to the brink of what’s called a bear market, where the S&P 500 was on the verge of closing more than 20 per cent below its record.

“Outside of a peace agreement in Ukraine, it’s difficult to construct a case for more than a bear market rally,” which would be just a temporary turn higher for stocks, Morgan Stanley strategists led by Michael Wilson wrote in a report. They said that the more stock prices rise, the more likely the Federal Reserve will be to hike interest rates.

Highlighting the worries about inflation, oil prices rose after the European Union agreed to block the majority of oil imports from Russia because of its invasion of Ukraine. Benchmark US crude slipped 0.3 per cent to settle at $US114.67 per barrel. Brent crude, the international standard, was down 1.4 per cent at $US115.96 after earlier topping $US120.

The jump of more than 50 per cent for oil prices so far this year has been a big contributor to the very high inflation sweeping the world. Earlier Tuesday, a report showed inflation in the 19 countries that use the euro currency hit 8.1 per cent in May, the highest level since records began in 1997.

In the US, President Joe Biden will meet with Federal Reserve Chairman Jerome Powell as soaring inflation continues to carve up Americans’ earnings.

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