Stocks Finish Friday’s Session in Positive Territory
Last Updated 4:15 PM EST
Stock indices finished Friday’s trading session in positive territory. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 gained 2.69%, 3.07%, and 3.49%, respectively.
All sectors except energy finished the week in the green, with the consumer discretionary sector (XLY) being the best performer, gaining 9.2% week-to-date.
On the other hand, the energy sector (XLE) saw heavy very selling, as it lost another 7.96% of its value in just five days. This is on top of the 17.15% decline the sector witnessed last week. It would appear that recession fears have markets anticipating lower demand for oil and gas, going forward.
Treasury yields saw a slight increase today, with the U.S. 10-Year Treasury yield at 3.136%, an increase of 4.5 basis points. In addition, the Two-Year Treasury yield is at 3.05%, bringing the spread between them to only 8.6 basis points.
This spread is an important indicator closely followed by investors. Many people view a negative spread between the 10-year and the two-year yields as a warning sign of a pending recession.
Interestingly, the market is now pricing in a higher chance of a slightly lower Fed Funds rate for the end of the year. In fact, the market now expects a 42.23% probability that the rate will be between 3.25% to 3.5% and a 33.16% chance of it being between 3.5% to 3.75% in December 2022. For reference, yesterday’s probabilities were 36.79% and 40.41%, respectively.
USDA Food Inflation Outlook Worsens in June
Last Updated 3:00PM EST
Equity markets are in the green heading into the final hour of Friday’s trading session. As of 3:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 2.3%, 2.6%, and 2.8%, respectively.
On Friday, the U.S. Department of Agriculture released its food price outlook for 2022. Not surprisingly, it increased its forecast from a range of 6.5% to 7.5% in May to a range of 7.5% to 8.5% in June. The main driver of this increase was the war in Ukraine and rising interest rates.
More specifically, items that fall into the “food at home” category, meaning food from grocery stores, are leading the increase. Indeed, projections for this category rose from a range of 7% to 8% in May to a range of 8.5% to 9.5% in June. In contrast, food increases from restaurants are expected to remain in the 6% to 7% range.
The most dramatic increase in forecast came from poultry, as projections grew to a range of 13% to 14% compared to 8.5% to 9.5% just a month ago. Overall, eggs are the biggest driver of food inflation as prices are expected to increase between 19.5% to 20.5%.
This may further add to recession fears as it suggests that inflation will continue to remain stubbornly high due to factors that are beyond the Federal Reserve’s control.
New Home Sales Come in Better than Expected
Last Updated 12:00PM EST
Stocks are positive halfway into Friday’s trading session. As of 12:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 2.1%, 2.3%, and 2.4%, respectively.
As interest rates rise to combat inflation, many have become increasingly concerned about the real estate market. These fears may be justified if current trends continue.
On Friday, the Census Bureau released its United States New Home Sales data, which came in at 696,000. For reference, forecasters were expecting a print of 588,000. New Home Sales measures the number of single-family homes sold in the prior month (on an annualized basis).
This marks an increase from last month’s reading after the four previous months saw consecutive declines. Nevertheless, the current number is much lower than last year’s figure, which was 769,000.
It’s worth noting that despite the increase this month, the overall trend is still in decline, which is occurring during a period of rising inventory. At the beginning of the year, the supply of houses was 5.6 months. However, in May 2022, the supply increased to 7.7 months. In contrast, the supply in May 2021 was only 5.4 months.
If these two trends continue, it will put downward pressure on home prices. This will lead to homeowners feeling less wealthy, who will likely cut back on non-essential spending. As a result, this will cause the economy to slow down, going forward.
Stocks are Green to Start Friday’s Trading Session
Last Updated 10:00AM EST
Stocks are positive 30 minutes into Friday’s trading session. As of 10:00 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 1.3%, 1.6%, and 2.1%, respectively.
The healthcare sector (XLV) is the laggard so far, as it is only up 0.2%. Conversely, the communications sector (XLC) is the session’s leader with a gain of 2.4%.
WTI crude oil is on the rise as well as it looks to recover from its recent decline. Currently, it trades at around $105 per barrel after hitting a low of $101.56 per barrel earlier in the week.
Meanwhile, bonds continue their rally as the U.S. 10-Year Treasury yield is hovering at 3.074%. This represents a slight yield decrease of 1.7 basis points from yesterday’s close but a significant decline from last week’s high of almost 3.5%.
Similar movements can be seen with the Two-Year yield, which is now at 3%, equating to a decline of 2.3 basis points from yesterday’s close. Nevertheless, the spread between the 10-Year and Two-Year U.S. Treasury yields remains narrow, as it currently sits at 7.4 basis points.
Pre-Market Update
Stock futures rose in the early morning trading hours of Friday, after a relief rally on Thursday following the decline in bond yields.
Futures on the Dow Jones Industrial Average (DJIA) moved 0.60% higher, while those on the S&P 500 (SPX) climbed 0.70%, as of 4.57 a.m. EST, Friday. Meanwhile, the Nasdaq 100 (NDX) futures advanced by 0.93%.
As the concerns were given fresh momentum after the Fed mentioned the “possibility” of a recession, bond yields dipped significantly. The benchmark 10-year Treasury yields were trading around their lowest level in two weeks.
Meanwhile, UBS fueled the fear by raising its estimates of the chances of a recession to 69%, on the heels of similar expectation increases made by Citigroup and Goldman.
As bond yields move inversely to stock prices as a rule of thumb, the stock market rallied on Thursday, led by consumer staples, real estate, healthcare, utilities, and other defensive stocks.
However, oil stocks fell sharply after U.S. President Joe Biden announced fuel cost cuts, pulling down the energy sector in the S&P 500.
At the market close Thursday, the S&P 500 gained 0.95%, while the Dow and the Nasdaq 100 were up 0.64% and 1.47% respectively.
Moreover, U.S. weekly jobless claims released by the Labor Department revealed that the labor market continues to remain saturated. Jobless claims dropped by 2,000 to 229,000 last week.
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