US stocks fell on Tuesday on weaker-than-expected economic data and as oil reversed direction to end the session lower, but blue-chip equities posted a third month of gains while mid-caps enjoyed their best levels since August.
Albeit 100 points off its 2016 peak on April 20, the S&P 500 index posted a third successive month of gains in May, even if it fell by 0.1% to 2,096 on Tuesday.
Neverthless, traders reckon the S&P 500 may struggle to post further gains due to the risk of a Fed rate increase and worries about Britain's June 23 referendum on European Union membership.
US interest rate futures implied traders see a 28% chance the Fed would raise rates next month and a 61% chance it would do so at its July policy meeting, according to CME Group's FedWatch program.
The S&P Midcap 400 ended the session up 0.07% at 1,493 - and its best levels since August 19.
The S&P Smallcap 600 closed the month up 0.33% at 705 - its highest level since the end of April.
The US oil benchmark West Texas Intermediate ended down 0.5% at $49.10.
US shares were lower at midsession on Tuesday after mixed data and a kingpin equity fund manager's bearish prognosis for stocks.
The market bellwether S&P 500 index was down 0.2% at 2,095 having given up gains early in the session.
But there was better news for smaller stocks - and it was not all so-called "window dressing" at the end of the month by fund managers.
The S&P Midcap 400 was up 0.08% at 1,493, led by energy stocks such as Westar Energy (NYSE:WR), Sm Energy (NYSE:SM) and Consol Energy (NYSE:CNX), as the US oil benchmark WTI was up 0.9% at $49.76 and earlier spiked above $50.
The S&P Smallcap 600 was up 0.3% at 704, and also led by energy stocks such as Bonanza Creek Energy (NYSE:BCEI), Cloud Peak Energy (NYSE:CLD) and Rex Energy Corp (NYSE:REXX).
While volumes were thin as investors returned to Wall Street after a long weekend, US house prices rose more than forecast in March and consumer spending rose by the most in seven years in April.
On the flipside, Texan manufacturing data spooked markets, as factory activity unexpectedly contracted at a quicker pace in May than forecast. The Texan data reinforced other recent disappointments for US manufacturing which may help hold back a Fed rate hike.
Meanwhile, BlackRock said global equities "look vulnerable". Even if the MSCI World Index of global stocks has gained 14% since the market's nadir in mid-February, equities "no longer look cheap" the world's biggest asset manager said on Tuesday.
BlackRock cited four areas of concern for equities. The Fed could hike rates too aggressively mid-year, UK citizens could vote to leave the European Union next month, the European refugee crisis could become bigger, and global growth might disappoint.
While the Dow Jones average opened lower, the S&P 500 and Nasdaq Composite both, as expected, kicked off higher.
The S&P 500 was up four points at 2,103, as investors digested some economic data.
“The headline success for those hawks in the central bank was the personal spending figure; from a downward revised 0.0% last month the number surged all the way to 1.0%, the highest reading in effectively two years,” noted Connor Campbell at spread betting firm Spreadex.
“Joining that was a solid 0.4% reading for personal income and a jump to 0.2% for the core PCE price index, though they were countered by a negative territory level Chicago PMI (slipping to 49.3, its worst reading February) and a CB consumer confidence figure that, at 92.6, matches the low seen in November. So, not enough to ensure a rate hike in the coming months, but plenty of the hawks to play with, something that hit the Dow Jones and dragged it 40 points lower,” Campbell added.
The Dow has since recovered a little to trade 30 points lower at 17,843.
Mid-caps are firmer on balance, with the S&P 400 five points to the good at 1,497. The small-caps tracker, the Russell 2,000, was four points higher at 1,155.
On Nasdaq, Celator Pharmaceuticals Inc (NASDAQ:CPXX), as expected, set the pace after the board agreed to recommend acceptance of a bid from French peer Jazz Pharmaceuticals Inc.
Shares in Celator were up 71% to $29.94 as Jazz offered $30.25 a share, valuing Celator at around $1.5bn.
Life sciences firm Stemcell Inc (NASDAQ:STEM) lost four-fifths of its value as it terminated its phase II pathway study in spinal cord injuries.