Stocks Finish Monday’s Session in Negative Territory
Last Updated 4:15 PM EST
Stock indices finished Monday’s trading session in negative territory. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 decreased 0.69%, 0.84%, and 0.89%, respectively.
The healthcare sector (XLV) was the session’s laggard, as it declined by 2.12%. Conversely, the energy sector was the session’s leader, with a gain of 2.25%. In addition, WTI crude oil gained 4.7%, reaching $102.17 per barrel after last week’s big sell-off that saw prices hit a low of $90.58 per barrel.
Furthermore, the U.S. 10-Year Treasury yield increased to 2.97%, a gain of more than four basis points. On the other hand, the Two-Year Treasury yield fell slightly but still remains higher at 3.16%. This brings the spread between them to -19 basis points. The negative spread indicates that investors still have fears of a recession as interest rates rise.
Compared to Friday, the market’s expectations of the Fed Funds rate remained more or less the same. However, the market is now pricing in a slightly more elevated chance of a higher Fed Funds rate for the end of the year.
In fact, the market’s expectations for a rate in the range of 3.75% to 4% increased to 21.3%, up from Friday’s expectations of 20.9%. In addition, the market is now also assigning a 3.9% probability to a range of 4% to 4.25%. For reference, investors had assigned a 3.8% chance on Friday.
This rise in rate expectations is the result of persistent inflation that continues to accelerate. As a result, the Federal Reserve will likely have very little choice but to push interest rates higher than initially anticipated.
Stocks Give Up Gains as Apple Plans to Slow Hiring
Last Updated 3:00PM EST
Stocks are negative heading into the final hour of today’s trading session. As of 3:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.3%, 0.5%, and 0.6%, respectively.
Stocks saw their gains from earlier on in the day erased as Apple (AAPL) plans to reduce hiring and growth spending. It’s clear that the company is expecting demand for its hardware products to slow down as inflation erodes the purchasing power of consumers. Apple joins the growing list of large firms such as Tesla (TSLA) and Microsoft (MSFT) to announce a slowdown in hiring.
In addition, WTI crude oil is currently hovering around $102 per barrel, well off the session low of $95.88 per barrel.
The commodity’s recent bounce has yet to lead to higher prices at the pump. The national average for regular gas was last $4.521 per gallon, down from yesterday’s reading of $4.532. This is significantly lower than the all-time high of $5.016 per gallon on June 14.
The highest average gas price can be found in California, where it’s substantially higher than the national average, at $5.897 per gallon. On the other hand, South Carolina is the state with the lowest average gas price, at $4.02 per gallon.
There’s no doubt that consumers hope this downward trend continues. However, if it does continue downwards, it is likely to come at the cost of a recession as oil supplies remain limited. As a result, the Federal Reserve will likely be forced to act more aggressively by raising interest rates high enough to destroy demand.
Home Builder Sentiment Declines Over the Past Month
Last Updated 12:05AM EST
Equity markets are in the green halfway into today’s trading session. As of 12:05 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 0.5%, 0.8%, and 1.4%, respectively.
On Monday, the National Association of Home Builders released its U.S. NAHB Housing Market Index for July. The report measures home builder sentiment by surveying around 900 companies. A reading above 50 indicates that more home builders have a positive view of market conditions than a negative one.
The good news is that today’s number came in at 55, meaning that most do have a favorable view of the market. However, this print is significantly lower than the 66 that was expected. Indeed, it was a 12-point drop from the past month’s reading of 67. This is lower than June 2020, when the reading was 58, and the second largest drop since the survey started, eclipsed only by a 42-point decline in April 2020.
The main driver behind this drop in sentiment is higher construction costs related to rising inflation and financing costs. In addition, buyer demand is softening as builders are being forced to reduce prices in order to increase sales and limit cancelations.
This downward trend is likely to continue as the Federal Reserve continues to raise interest rates to combat accelerating inflation.
Stocks are Green to Start Monday’s Trading Session
Last Updated 10:00AM EST
Stocks are positive 30 minutes into Monday’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 0.7%, 0.9%, and 1.3%, respectively. This is due to Goldman Sachs’ earnings report, which beat both revenue and earnings estimates.
The utilities sector (XLU) is the laggard so far, as it is down almost 1%. Conversely, the energy sector (XLE) is the session’s leader, with a gain of almost 3.5%.
WTI crude oil is back over $100 per barrel after President Biden’s trip to Saudi Arabia didn’t result in an agreement to boost oil production. As a result, oil supplies will remain tight. Currently, the price is hovering around $102 per barrel, which equates to an increase of 4.7% from the previous close.
Meanwhile, bond yields are higher, as the U.S. 10-Year Treasury yield is now hovering around 2.98%. This represents an increase of over five basis points from the previous close.
Opposite movements can be seen with the Two-Year yield, which is now at 3.16%. Although the spread between the 10-Year and Two-Year U.S. Treasury yields is slightly narrower today, it is still negative as it currently sits at -18 basis points.
Pre-Market Update
At the start of the new week, stock futures are in the green today as the Street looks forward to a slew of earnings by major names.
Futures on the Dow Jones Industrial Average (DJIA) are up 0.84%, while those on the S&P 500 (SPX) are up 1.13% as of 4.41 a.m. EST Monday. In the meantime, the tech-heavy NASDAQ 100 (NDX) futures are up 1.63%. The Dow had surged 2.15% at the end of trade on Friday, while the S&P 500 and Nasdaq 100 had gained 1.92% and 1.79%, respectively.
While the U.S. markets snapped out of a five-day losing streak on Friday, major Asian markets such as China, Hong Kong, and Australia are also in the green today. Furthermore, the Fed looks set to raise interest rates by a further 75 basis points later this month.
Boeing (BA) shares are flying 3% higher in the pre-market session after positive commentary by the company’s CEO and as the Farnborough Air Show takes center stage this week. Starbucks (SBUX) shares are up nearly 0.73% in today’s pre-market trade as the company mulls a sale of its UK unit.
Additionally, the crypto bellwether, Bitcoin (BTC-USD), is finally starting to see some gains and is up nearly 14% over the past five days.
Finally, the possibility of a rate hike later this month has resulted in an inverted gap between two-year and 10-year yields, implying that recession is becoming a more and more likely scenario. Additionally, the July data for the National Association of Home Builders (NAHB) Housing Market Index is expected at 10 a.m.
These macro headwinds also seem to have led to the resumption of trade talks between the EU and India after a nine-year gap. Additionally, the U.S. Dollar’s winning streak continues as recessionary fears further propel the currency upwards.
Read full Disclosure
