U.S. Stocks Decline Amid Trade Tensions, Rate Speculation

Market Performance and Key Movements

U.S. stock futures showed a downward trend on Tuesday, reflecting growing investor concerns over ongoing trade tensions and their potential impact on global economic growth. Futures for the S&P 500, Dow Jones Industrial Average, and Nasdaq 100 fell 0.4%, 0.41%, and 0.39% respectively in premarket trading. This follows a mixed Monday session where the S&P 500 and Nasdaq posted modest gains, while industrials lagged behind other sectors.

Energy and technology stocks led sector gains, benefiting from rising crude oil prices and strong demand for tech innovation. Conversely, industrial stocks struggled, weighed down by fears of higher input costs due to tariffs. As of the previous close, the S&P 500 marked a 6.2% monthly gain for May, its best performance since November 2023, while the Nasdaq surged 9.6% for the month.

Trade Tensions and Economic Indicators

China's Ministry of Commerce dismissed the U.S.'s allegations of trade violations, emphasizing its commitment to international agreements. This response comes amidst President Trump's announcement to double tariffs on steel and aluminum imports to 50%, escalating trade tensions further. These developments are expected to weigh on upcoming trade negotiations, which investors are closely monitoring.

On the economic front, the ISM manufacturing PMI for May came in at 48.5, slightly below April’s 48.7 and missing market expectations of 49.5. This marks the seventh consecutive month of contraction in the manufacturing sector. Additionally, U.S. construction spending dropped 0.4% month-over-month in April to an annualized rate of $2.152 trillion, following a revised 0.8% decline in March. These figures highlight ongoing challenges in the U.S. economy, despite resilient consumer spending and stabilizing inflation trends.

Analyst Insights and Market Outlook

Analysts are divided on the S&P 500's trajectory, but technical indicators suggest a potential recovery. According to LPL Financial, the S&P 500's uptrend strengthened in May, with the index breaking its short-term downtrend and holding above its 200-day moving average. Analysts note that a close above 5,969 points could pave the way for a retest of the previous high of 6,144 points, offering a positive near-term outlook.

Trade policy remains a critical variable. The Organisation for Economic Co-operation and Development (OECD) has revised its 2025 global growth forecast down to 2.9%, citing tariff-related uncertainties. Additionally, Federal Reserve rate decisions continue to influence market sentiment, with the FedWatch Tool showing a 95.3% probability of no rate hike at the June meeting. Analysts stress that while trade and monetary policies remain fluid, strong corporate earnings and consumer spending may provide support for equities in the months ahead.