A tumultuous May for markets ended almost exactly where it started in equities, with a late-session drop Tuesday depositing the S&P 500 less than a point higher than its level a month ago. It was a final twist in a month that saw volatility surge and debates rage around inflation, the Federal Reserve’s plan to subdue it and the impact on the economy.

The S&P 500 was fell 0.6 per cent on Tuesday, bringing its monthly return to virtually zero. During the month of May, the benchmark index surged more than eight per cent after falling within points of a 20 per cent drop from a record, signifying a bear market. 

Ten-year Treasury yields climbed 12 basis points to 2.85 per cent, just below where they started the month. West Texas Intermediate oil was little changed, leaving it 10 per cent higher in the month. And Bitcoin held above US$31,000, down 17 per cent in May.

Equities began the day lower on worries inflation was proving more persistent, intensifying the debate over how quickly central banks will raise interest rates. Euro-zone consumer prices jumped 8.1 per cent to a record from a year earlier in May. Meanwhile, WTI crude oil pared gains from a partial ban on Russian oil by the European Union. The dollar advanced.

Fears central-bank rate hikes may tip the economy into a recession are keeping investors watchful as rising food and energy costs squeeze consumers. May saw nearly unprecedented volatility in stocks as the S&P 500 plunged more than three per cent three different times and capped its longest streak of weekly losses since 2001 only to surge at the month’s end.

The moves come amid skepticism about whether the market is near a trough and as volatility stays elevated. Swaps show traders have almost fully priced in two half-point rate increases in June and July, with even odds of a third such hike in September.

“When you throw-in the likelihood that earnings estimates are going to have go be cut in a significant way as we move through the summer, it emboldens our view that the stock market will have to see lower-lows before the ultimate bottom for this decline is reached,” Matt Maley, chief market strategist at Miller Tabak + Co., said. 

Federal Reserve Chair Jerome Powell is meeting President Joe Biden in a rare Oval office meeting on Tuesday to discuss inflation ahead of US payroll numbers later this week. The meeting follows comments by Fed Governor Christopher Waller on Monday, suggesting the Fed should keep raising rates in half-percentage point steps until inflation is easing back toward the central bank’s goal. 

“It’s times like these when investors need a crystal ball,” wrote LPL Financial strategists Jeff Buchbinder and Ryan Detrick. “We fully acknowledge how tough it is to see the bull case for stocks right now, and a retest of recent lows is certainly possible, but this week we lay out the bull case for the second half of the year. It starts with inflation.”

Among individual stock moves, Deutsche Bank AG slipped after the lender and its asset management unit had their Frankfurt offices raided by police. Unilever Plc jumped as activist investor Nelson Peltz joined its board. And US-listed Chinese stocks -- including Alibaba Group Holding Ltd. -- climbed, wiping out the group’s monthly losses as easing in lockdown measures in major cities and better-than-expected economic data reassured investors. 

Here are some key events to watch this week:

• The Federal Reserve is set to start shrinking its US$8.9 trillion balance sheet Wednesday
• The Fed releases its Beige Book report on regional economic conditions Wednesday
• New York Fed President John Williams, St. Louis Fed President James Bullard speak at separate events Wednesday
• OPEC+ virtual meeting Wednesday
• Cleveland Fed President Loretta Mester discusses the economic outlook Thursday
• US May employment report Friday
• The UN’s Food and Agriculture Organization releases its monthly food price index at a time of maximum concern about global supplies on Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.6 per cent as of 4:05 p.m. New York time
• The Nasdaq 100 fell 0.3 per cent
• The Dow Jones Industrial Average fell 0.7 per cent
• The MSCI World index fell 0.6 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.4 per cent
• The euro fell 0.4 per cent to US$1.0735
• The British pound fell 0.4 per cent to US$1.2604
• The Japanese yen fell 0.9 per cent to 128.69 per dollar

Bonds

• The yield on 10-year Treasuries advanced 12 basis points to 2.85 per cent
• Germany’s 10-year yield advanced seven basis points to 1.12 per cent
• Britain’s 10-year yield advanced 11 basis points to 2.10 per cent

Commodities

• West Texas Intermediate crude fell 0.1 per cent to US$114.94 a barrel
• Gold futures fell one per cent to US$1,839.10 an ounce