Stocks Finish Monday’s Session in Negative Territory
Last Updated 4:15PM EST
Stock indices finished Monday’s trading session in the red. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 decreased 0.14%, 0.28%, and 0.06%, respectively.
The energy sector was the session’s laggard, as it fell by 2.13%. Conversely, the consumer staples sector (XLP) was the session’s leader, with a gain of 1.21%. In addition, WTI crude oil lost 4.5%, reaching $93.86 per barrel. However, it is off the session low of $92.44 per barrel.
Furthermore, the U.S. 10-Year Treasury yield decreased to 2.595%, a decline of 5.9 basis points. Similarly, the Two-Year Treasury yield also decreased, hovering around 2.896%. This brings the spread between them to -30.1 basis points. The negative spread indicates that investors still have fears of a recession.
Compared to Friday, the market’s expectation of the Fed Funds rate for the end of the year remained relatively flat. Investors’ expectations for a rate in the range of 3% to 3.25% increased to 33.5%, which is slightly up from last Friday’s expectations of 32.3%. In addition, the market is now also assigning a 50.8% probability to a range of 3.25% to 3.5%. For reference, investors had assigned a 50.2% chance on Friday.
Unfavorable Manufacturing Data Can be Seen around the Globe
Last Updated 3:00PM EST
Stock indices are mixed, heading into the final hour of Monday’s trading session. As of 3:00 p.m. EST, the Dow Jones Industrial Average and the Nasdaq 100 are up 0.03% and 0.2%, respectively. Meanwhile, the S&P 500 is down 0.1%
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 July, new orders for the manufacturing index came in at 48 compared to 49.2 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, this manufacturing slowdown isn’t limited to the U.S., as Spain, Italy, France, Germany, and the Eurozone as a whole saw Manufacturing PMI reports that were all under 50. The problem is two-fold – high inflation and rising interest rates.
Even if inflation has peaked, it would likely remain higher than what is considered acceptable. Higher prices have already impacted consumer spending patterns as they shift away from discretionaries to essentials. Therefore, even more inflation will make things worse. As a result, central banks need to continue raising interest rates.
However, higher interest rates make the cost of borrowing higher, which reduces business investment and consumer spending as well. Thus, when putting all of this together, it’s not hard to see why the manufacturing sector is slowing down.
Manufacturing Employment Contracts for the Third Straight Month
Last Updated 12:00PM EST
Stocks are positive halfway into today’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 0.2%, 0.2%, and 0.9%, respectively.
The energy sector is the laggard so far, as it is down 2.6%. Conversely, the consumer discretionary sector is the session’s leader, with a gain of 1.7%.
On Monday, 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 52.8, better than the expected 52.
It’s worth noting that this indicator is lower than last month’s reading of 53 and 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 49.9, meaning that manufacturing employment went into contraction for the third straight month. Therefore, this could mean that manufacturing companies may have either overhired or that they expect production levels to continue waning.
Stocks are Little Changed to Start Monday’s Trading Session
Last Updated 10:00AM EST
Stock indices are relatively flat 30 minutes into today’s trading session. As of 10:00 a.m. EST, the Dow Jones Industrial Average and the S&P 500 are down less than 0.1%, respectively. Meanwhile, the Nasdaq 100 is up 0.2%
WTI crude oil remains below $100 per barrel, as a slowdown in China has the market concerned about the demand outlook. Therefore, the price is hovering around the mid-$93 per barrel range, down roughly 4.7% from the previous close.
Meanwhile, bond yields are lower, as the U.S. 10-Year Treasury yield is now hovering around 2.64%. This represents a decrease of 1.4 basis points from the previous close.
Similar movements can be seen with the Two-Year yield, which is now at 2.91%. However, the spread between the 10-Year and Two-Year U.S. Treasury yields is still negative, as it currently sits at -27 basis points.
Stock futures dipped as investors prepare for another week of major earnings releases as well as key economic data.
Futures on the Dow Jones Industrial Average (DJIA) gained 0.21%, while those on the S&P 500 (SPX) moved 0.60% higher, as of 7.46 a.m. EST, Friday. Meanwhile, the Nasdaq 100 (NDX) futures significantly advanced by 0.89%.
On Friday, the market closed the best month since 2020. The S&P 500, the Dow, and the Nasdaq 100 closed the regular trading hours 1.42%, 0.97%, and 1.81% higher, respectively. For the month of July, the S&P 500 advanced 9.1%, the Dow gained 6.37%, and the Nasdaq 100 added almost 12%.
Despite the relief rally, the truth still remains that the economy is headed for a recession.
This week, blue-chips such as Activision Blizzard (ATVI), Uber (UBER), and Caterpillar (CAT) are expected to report their quarterly earnings. Also, energy players like Devon Energy (DVN), Loews (L), and others are set to release their earnings reports later on Monday.
Additionally, nonfarm payrolls report from the Bureau of Labor Statistics is due out on Friday this week. This data will provide a clearer understanding of how the labor market is holding up. Interestingly, the labor market of the U.S. has managed to defy all odds this year thus far, easing the worries of economists slightly amid two consecutive quarters of economic contraction.