Stocks End Tuesday’s Trading Session in the Red Ahead of CPI Report
Last Updated 4:15PM EST
Stock indices finished Tuesday’s trading session in negative territory as investors await tomorrow’s inflation report. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 decreased 0.61%, 0.92%, and 0.97%, respectively.
The energy sector was the session’s laggard, as it declined by 1.94%. Conversely, the communications sector (XLC) was the session’s leader, with a decline of 0.02%.
In addition, WTI crude oil got hit hard, falling to the high-$95 per barrel price range despite OPEC failing to meet output targets during June. In fact, OPEC produced 24.81 million barrels of oil per day compared to the 25.87 million barrels per day target. This equates to a shortfall of 1.06 million barrels.
Furthermore, Treasury yields fell today, with the U.S. 10-Year Treasury yield falling below 3% to 2.965%, a decrease of more than three basis points. However, the Two-Year Treasury yield remains higher at 3.043%. This brings the spread between them to -7.8 basis points.
Moreover, Microsoft is the latest major employer to lay off employees, as it reduced its headcount by less than 1%. Although this represents a small amount, it is part of a larger trend that has been occurring in anticipation of an economic slowdown.
When one of the world’s most profitable companies thinks it needs to reduce headcount, you can bet smaller companies are thinking the same thing.
Euro to U.S. Dollar Exchange Rate Briefly Drops Below Parity
Last Updated 3:00PM EST
Equity markets are in the red heading into the final 45 minutes of today’s trading session. As of 3:15 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.4%, 0.8%, and 1%, respectively.
The energy sector is the session’s laggard, as it is down by almost 2.5%. However, no sector is safe today; they have all declined so far. Indeed, the consumer staples sector is the session’s leader, with a loss of 0.04%.
The U.S. Dollar continues to gain strength against the Euro amid fears of more economic turmoil in Europe as a result of the war in Ukraine. Energy prices remain high as Russia has reduced the amount of natural gas flowing into Europe.
This has caused the Euro to U.S. Dollar exchange rate to fall briefly below 1.00 for the first time in two decades. The exchange rate is currently 1.005.
In addition, WTI crude oil is now down almost 8% to the mid-$95 per barrel range, which is currently the session low. Recession fears continue to grip the market as central banks around the world continue to voice their concerns about decades-high inflation numbers.
Average Gas Prices are Trending Down; Stocks Turn Positive
Last Updated 12:00PM EST
Stocks are positive halfway into Tuesday’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 0.3%, 0.1%, and 0.1%, respectively.
The energy sector continues to lag, as it is down almost 2%. Conversely, the financial sector (XLF) is the session’s leader with a gain of 1.1%. In addition, WTI crude oil is currently hovering around $96 per barrel, as it remains well off the session high of $103.35 per barrel.
The commodity’s recent pullback has led to lower gas prices across the country. Undoubtedly, consumers welcome the drop as inflation has been cutting into their spending power. The national average for regular gas was last $4.655 per gallon, down from yesterday’s reading of $4.678. This is significantly lower than the all-time high of $5.016 per gallon on June 14.
The highest price can be found in California, where prices are substantially higher than the national average at $6.058 per gallon. On the other hand, Georgia just beat out South Carolina for the state with the lowest gas price at $4.162 per gallon.
There’s no doubt that consumers hope this downward trend continues. However, the Federal Reserve hopes that prices will come down without having to force a recession.
Stocks are Red to Start Tuesday’s Trading Session
Last Updated 10:00AM EST
Stocks are negative 30 minutes into Tuesday’s trading session. As of 10:00 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.03%, 0.3%, and 0.5%, respectively. The energy sector (XLE) is the laggard so far, as it is down almost 3%. Conversely, the utilities sector (XLU) is the session’s leader with a gain of 0.6%.
WTI crude oil is slipping as its downward momentum resumed after a brief bounce. Currently, the price is hovering around $97 per barrel, which equates to a decrease of over 6% from the previous close. The decline is being fueled by renewed COVID-19 lockdowns in China that are impacting the fuel demand outlook.
Meanwhile, bond yields are lower as the U.S. 10-Year Treasury yield is now hovering around 2.9%. This represents a decrease of over nine basis points from the previous close.
Similar movements can be seen with the Two-Year yield, which is now at 3%. This means that the spread between the 10-Year and Two-Year U.S. Treasury yields is still negative and actually widening, as it currently sits at -10 basis points.
Pre-Market Update
U.S. equity futures dipped in the early hours of Tuesday ahead of major economic data and earnings releases amid the rising likelihood of a recession. The second quarter is likely to continue being volatile as investors keep an eye on downside risks to earnings outlooks, within an economic environment of inflation and high interest rates.
Futures on the Dow Jones Industrial Average (DJIA) lost 0.67%, while those on the S&P 500 (SPX) moved 0.61% lower, as of 6:55 a.m. EST, Tuesday. Meanwhile, the Nasdaq 100 (NDX) futures retracted 0.45%.
All the three major averages recorded losses on Monday, with the Dow, S&P 500, and Nasdaq 100 closing 0.52%, 1.15%, and 2.19%, respectively.
Meanwhile, in the forex market, the dollar strengthened amid heightened concerns of a recession. The energy crisis and proximity to the warzone in Ukraine weakened the euro against the dollar.
On the other hand, the 10-year Treasury yield dropped to 2.92%. Yields typically move inversely to equity prices, but have been weighed down over recent weeks as speculation of the Fed lowering interest rates in 2023 began to circulate.
In other news, yet another earnings season has begun, and investors are closely watching how companies are navigating pressures. Many industries are facing challenges from all sides, namely, rising costs, rising interest expenses, higher wages, and other headwinds.
PepsiCo (PEP) is scheduled to report earnings before the market opens on Tuesday. Meanwhile, Delta Air Lines (DAL) and auto insurer Progressive (PGR) are set to report on Wednesday. Earnings from financial services behemoths JPMorgan Chase (JPM), Morgan Stanley (MS), Wells Fargo (WFC), and Citigroup (C) are due out later this week.
Apart from earnings, investors are looking forward to Wednesday’s release of June’s consumer price index (CPI), the most accurate measure of inflation. The headline CPI, which encompasses food and energy, is likely to have inflated to 8.8% in June, according to Dow Jones estimates.
The Federal Reserve is likely to respond to this new 40-year high (if it happens) by raising the benchmark interest rates higher than expected. This succession of events will most likely solidify recession fears.
