Stocks Gain While Commodities Slide as Recession Fears Mount
Last Updated 4:15 PM EST
Stocks finished Thursday’s trading session in the green, as the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 gained 0.64%, 0.95%, and 1.47%, respectively. The energy sector was the worst performer, as it fell 3.76%, while the utilities sector was the session leader with a gain of 2.34%.
Despite the supply-chain shortages, commodities continued to tumble on growing fears that a recession will negatively impact demand. Indeed, natural gas is down over 9% to $6.22 as the downward momentum that started in early June continues.
Other commodities such as copper and silver have also been trending down recently. This could be caused by a potential slowdown in the construction and manufacturing sectors. These slowdowns can be seen by the decline in U.S. housing starts witnessed in May and by the down-trending manufacturing PMI numbers that were released today across multiple economic zones.
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 38.16% probability that the rate will be between 3.25% to 3.5% and a 40.18% chance of it being between 3.5% to 3.75% in December 2022. For reference, yesterday’s probabilities were 33.94% and 43.2%, respectively.
This implies that investors may be starting to believe that the Federal Reserve will slow down the economy faster than previously expected, resulting in a slightly slower increase in rates.
Jerome Powell States That His Commitment to Fight Inflation is Unconditional
Last Updated 3:00PM EST
Stocks are positive, heading into the final stretch of Thursday’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 0.1%, 0.4%, and 0.8%, respectively.
The energy sector’s (XLE) downward pressure continues as it is down another 4.8%. Conversely, the utilities sector (XLU) is the session’s leader, with a gain of 2.1%.
WTI crude oil is down 0.3% on the day, as it trades around $104 per barrel after bouncing off the session lows of $102.35 per barrel.
Meanwhile, bonds continue their recent rally as the U.S. 10-Year Treasury yield is hovering around 3.07%. This represents a pullback of 9.2 basis points from yesterday’s close and 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 3.015%. Nevertheless, the spread between the 10-Year and Two-Year U.S. Treasury yields remains narrow, as it currently sits at 5.5 basis points.
This comes after Jerome Powell testified again on Thursday, where he stated that his commitment to fighting inflation is unconditional. This essentially means that the Federal Reserve will do whatever it takes to bring down inflation.
Traders had initially viewed Powell as less hawkish during Wednesday’s testimony, where the word “unconditional” was left out. However, that was not the case today, and it appears that recession fears among investors are continuing to grow.
Manufacturing PMI Results Come in Lower than Expected Across Multiple Economic Zones
Last Updated 12:00 PM EST
Stock indices are mixed halfway into the trading session. As of 12:00 p.m. EST, the Nasdaq 100 and the S&P 500 are up 0.8% and 0.2%, respectively. Meanwhile, the Dow Jones Industrial Average is down 0.2%
On Thursday, Markit released its report for the United States Manufacturing Purchasing Managers Index, which measures the activity level of purchasing managers in the manufacturing sector. A number over 50 represents an expansion, whereas anything below 50 means a contraction. The report came in at 52.4, below expectations of 56.
In addition, Manufacturing PMI data was also released for both the Eurozone and the United Kingdom. For the Eurozone, the reading came in at 52, which was worse than the 53.9 expected. On the other hand, the Manufacturing PMI print for the United Kingdom was 53.4 versus the forecast of 53.7.
The trend is quite clear across all three economic zones – manufacturing growth is slowing down more than expected. Since PMI readings peaked during the middle of 2021, all three zones have been downtrending towards the 50 level. If this trend continues, it might not be long until the manufacturing sector finds itself in a contraction.
Initial Jobless Claims Come in Higher than Expected
Last Updated 10:00 AM EST
Stocks are in the green after the first 30 minutes of trading. As of 10:00 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are all up roughly 0.7%.
On Thursday, the Department of Labor released its Initial Jobless Claims report, which came in worse than expected. In the past week, 229,000 people filed for unemployment insurance for the first time. Expectations were for 227,000 individuals.
When using the four-week average, initial jobless claims were 223,500, up from last week’s reading of 219,000. It’s worth noting that this figure has been steadily trending upwards each week since the start of April 2022.
Also important, Continuing Jobless Claims, which measures the number of unemployed people who qualify for unemployment insurance, came in as expected at 1.315 million.
Although ticking slightly higher from the previous week, Continuing Jobless Claims are in an overall downtrend and are currently sitting near their lowest levels since 1970. This suggests that more individuals are finding work than those who are filing for the first time.
It will be interesting to see if this trend continues as interest rates rise while economic growth continues to slow down.
Pre-Market Update
Stock futures moved up on Thursday, as investors tried to time the market amid growing fears of a recession.
Futures on the Dow Jones Industrial Average (DJIA) moved 0.39% higher, while those on the S&P 500 (SPX) climbed 0.63%, as of 7:25 a.m. EST, Thursday. Meanwhile, the Nasdaq 100 (NDX) futures advanced by 0.93%.
On Wednesday, the averages ended the regular trading session in red. The Dow lost 0.15% while the S&P 500 and the Nasdaq 100 shed 0.13% and 0.16%, respectively.
Also during the day, the Federal Reserve attended the first round of testimony before the Congress, where Chairman Jerome Powell mentioned that a recession is a “possibility,” giving some amount of certainty to the fears that have gripped Wall Street.
Meanwhile, as the fears of recession increased, the benchmark 10-year Treasury yield decreased 15 basis points to 3.154%, despite the fact that yields move inversely to stock prices.
Later on Thursday, fresh jobless claims data is set to be released, which will give investors better insight into how the unemployment rate is being affected during the turmoil.
Elsewhere, recession risk also looms large in some European countries, after it was revealed that Europe’s economy decelerated sharply in June, in response to the soaring energy and food prices.
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