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 increased 1.05%, 1.05%, and 0.71%, respectively.
More unfavorable economic data continues to be released, as the Institute for Supply Management released its monthly report for the ISM Manufacturing New Orders Index. For the month of June, new orders for the manufacturing index came in at 49.2 compared to 55.1 in the previous month.
It’s important to note that a reading under 50 means that new orders contracted. This is consistent with the other data that was released today that points to a slowdown in the manufacturing sector.
Unfortunately, it seems likely that this slowing trend will continue going forward and possibly spread to other parts of the economy. Indeed, the Atlanta Federal Reserve’s GDPNow tool, which allows it to estimate GDP growth in real-time, currently estimates that the economy will contract by about 2.08% in the second quarter.
Therefore, investors appear to be fleeing to the safety of bonds, as the 10-Year U.S. Treasury yield declined by 12.8 basis points to 2.889%. It seems that bond investors are currently positioning themselves in anticipation of a possible recession, which many define as two consecutive quarters of negative GDP growth. If the GDPNow estimate proves to be true for Q2, the U.S. economy will meet the criteria.
Eurozone Inflation Continues to Accelerate
Last Updated 3:00 PM 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 0.8%, 0.7%, and 0.4%, respectively.
On Friday, Eurostat released its preliminary estimate for Eurozone inflation. The Eurozone Consumer Price Index (CPI), which measures the change in the price of goods and services from a consumer’s perspective, came in hotter than expected. Economists had forecast growth of 8.4%. Unfortunately, the CPI print was 8.6% on a year-over-year basis.
This marks yet another accelerating increase in the Eurozone inflation rate. Indeed, the CPI growth rate has been increasing consistently since February 2021. The increase can be attributed to energy and food prices, which continue to be impacted by the war in Ukraine.
However, when stripping out energy and food prices, Core CPI was 3.7% on a year-over-year basis. This was a slight decline in growth compared to the previous print of 3.8%, which is the current peak. Nevertheless, 3.7% is still considerably high, as it is the Eurozone’s second-highest increase since the European Union was formed.
This will increase the pressure put on the European Central Bank to raise interest rates to combat inflation. However, raising rates too high would cause a ripple effect in global markets that would impact North American equities as well.
Manufacturing Employment Contracts for the Second Straight Month
Last Updated 12:00PM EST
Stocks are negative 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 down 0.6%, 0.5%, and 0.7%, respectively.
The technology sector (XLK) is the laggard so far, as it is down 1.2%. Conversely, the utilities sector (XLU) is the session’s leader with a gain of 1.3%.
On Friday, The Institute for Supply Management released its monthly report for the ISM Manufacturing Purchasing Managers’ Index, which measures the month-over-month change in production levels. A number over 50 represents an expansion, whereas anything below 50 means a contraction. The report came in at 53, worse than the expected 54.9.
It’s worth noting that this indicator has been slowly downtrending ever since its peak in April 2021, when it hit a high of 64.7. If this trend continues, it might not take long before production levels begin to contract.
Furthermore, the ISM Manufacturing Employment report posted a reading of 47.3, meaning that manufacturing employment went into contraction for the second straight month. Therefore, this could mean that manufacturing companies may have either overhired or that they expect production levels to continue waning.
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 0.3%, 0.4%, and 0.3%, respectively.
The healthcare sector (XLV) is the laggard so far, as it is down almost 0.1%. Conversely, the consumer discretionary sector (XLY) is the session’s leader with a gain of 1.6%.
WTI crude oil is currently in the green following OPEC’s meeting, where the group agreed to increase output by 648,000 barrels per day. However, it’s likely that most countries are already near max capacity.
The price is hovering around $107 per barrel, which is well off its previous week’s low of $101.56 per barrel. Still, it has quite a bit of room to rise in order to match its recent high of $123.66.
Meanwhile, bond yields are much lower as the U.S. 10-Year Treasury yield is now hovering around 2.882%. This represents a decline of 9.2 basis points from yesterday’s close.
Similar movements can be seen with the Two-Year yield, which is now at 2.819%. Nevertheless, the spread between the 10-Year and Two-Year U.S. Treasury yields remains narrow, as it currently sits at 6.3 basis points.
Pre-Market Update
Stock futures retracted early Friday morning as markets around the world closed the most battered first half since 1970.
Futures on the Dow Jones Industrial Average (DJIA) shed 0.33%, while those on the S&P 500 (SPX) declined 0.31%, as of 4.56 a.m. EST, Friday. Meanwhile, the Nasdaq 100 (NDX) futures dipped 0.34%.
In extended trading on Thursday, shares of Micron Technology (MU) lost more than 2% following a dismal outlook for the fourth quarter of fiscal 2022.
The Dow closed down 0.82% at the end of regular trading hours on Thursday, while the S&P 500 and Nasdaq 100 fell 0.88% and 1.33%, respectively.
The second quarter and the first half of 2022 came to a close on Thursday. The Nasdaq has suffered a loss of nearly 29.5% so far this year, the largest loss year-to-date among all the three major indexes. The S&P 500 was also down 20.6% in 1H while the Dow lost about 15% so far in 2022.
The first half was pummeled by rising inflation, the onset of the Russia-Ukraine war, three of the Federal Reserve’s monetary policy tightening moves, supply-chain disruptions, and growing concerns of a recession. The central bank is expected to keep increasing interest rates till inflation cools down to 2%-3% levels, despite the risk of a resulting recession.
Importantly, in the first quarter, the GDP of the U.S. shrank by 1.6% and has possibly contracted another 1% in Q2, according to indications from the Atlanta Federal Reserve’s GDPNow.
Not only did the U.S. face the repercussions of the economic concerns, but the global markets were also equally battered. The concerns slowed growth all over the world. As a result, stocks and bonds in emerging markets declined, fueled by concerns of a full-fledged debt crisis.
Moreover, the first half was the most unkind to cryptocurrencies, which crashed and led to significant losses for individual investors and hedge funds alike.
