Stocks Finish Thursday’s Session in Negative Territory
Last Updated 4:20 PM EST
Stock indices finished Thursday’s trading session in negative territory. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 fell 0.82%, 0.88%, and 1.33%, respectively.
Furthermore, the United States Chicago Purchasing Managers Index was released by ISM-Chicago, which measures the economic health of the manufacturing sector in Chicago. An expansion is defined by a number that is greater than 50, whereas a reading that is lower is considered a contraction.
It appears that the sector is still expanding in June, as the number came in at 56. However, this was lower than the expected 58 from forecasters and a decrease from last month’s report of 60.3. It’s worth noting that the Chicago PMI had been trending lower since its peak of 75.2 back in May 2021.
Unfortunately, it seems likely that this trend will continue on a downward path as the economy continues to slow down. 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 1% 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 7.5 basis points to 3.015%. 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 would fit the description.
Consumer Spending Comes in Weaker than Expected
Last Updated 3:00 PM EST
Equity markets are in the red heading into the final hour 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 down 0.9%, 0.8%, and 1.1%, respectively.
On Thursday, the U.S. Department of Commerce released its Real Personal Consumption report. This data measures the change in personal consumption for goods and services on a month-over-month basis, adjusted for inflation. Real Personal Consumption fell by 0.4% in May compared to a 0.3% increase in the previous month.
Similarly, the Bureau of Economic Analysis (BEA) released its Personal Spending report, which measures the inflation-adjusted change in all spending by consumers. This number increased by 0.2% month-over-month compared to the expected 0.4%. For reference, it decreased from the previous month’s reading of 0.6%.
In addition, the BEA also released data on the change in personal income, which was an increase of 0.5% versus expectations of 0.5%.
Together, these numbers suggest that consumer demand is waning. People are no longer willing to increase spending at a rate that is higher than income growth, as was the case in the previous month. It appears that inflation has made it difficult for Americans to justify unnecessary discretionary spending.
Core PCE Comes in Better than Expected
Last Updated 12:00PM EST
Stocks are negative halfway into Wednesday’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 0.7%, 0.6%, and 0.7%, respectively.
On Thursday, the Bureau of Economic Analysis released its Core Personal Consumption Expenditure (PCE) Price Index for the month of May. Since this is the Fed’s preferred measure of inflation, it tends to have more influence over Jerome Powell’s decisions than the CPI does.
On a month-over-month basis, PCE growth came in at 0.3%, which was slightly better than expectations of 0.4%. However, it is still above the 0.1% to 0.2% range that it consistently hovered around prior to the pandemic.
On a year-over-year basis, PCE increased by 4.7%, which is the highest level since 1984. Nevertheless, this marks the third straight month of decline after peaking at 5.4% in February.
Unfortunately, core PCE doesn’t include food and energy prices. When including these two items, year-over-year PCE was 6.3%, which remains elevated, near March’s peak of 6.6%, and flat compared to the previous month’s report.
Thus, it seems unlikely that the Federal Reserve will slow down its rate hikes anytime soon based on the current data, which will cause continued volatility in equity markets.
Initial Jobless Claims Come in Higher than Expected
Last Updated 10:00AM EST
Stocks are negative 30 minutes into Thursday’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 1.8%, 1.9%, and 2.5%, respectively.
On Thursday, the Department of Labor released its Initial Jobless Claims report, which came in worse than expected. In the past week, 231,000 people filed for unemployment insurance for the first time. Expectations were for 228,000 individuals.
When using the four-week average, initial jobless claims were 231,750, up from last week’s reading of 224,500. 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 at 1.328 million, worse than the forecast of 1.310 million but better than last week’s 1.331 million.
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
U.S. stock futures fell in the early morning trading Thursday morning, as the June quarter and first half of 2022 approached. The first six months of this year saw stocks and crypto losing significant ground.
Futures on the Dow Jones Industrial Average (DJIA) shed 1.14%, while those on the S&P 500 (SPX) declined 1.4%, as of 7:24 a.m. EST, Thursday. Meanwhile, the Nasdaq 100 (NDX) futures dipped 1.62%.
Federal Reserve Chairman Jerome Powell, who was at the European National Bank conference on Wednesday, reiterated that the central bank will keep increasing the interest rates to rein in inflation, despite putting the economy at risk of a recession.
The Dow and the Nasdaq 100 gained 0.27% and 0.18%, respectively, at the end of Wednesday’s regular trading session. The S&P 500, on the other hand, posted the third consecutive negative day, sliding 0.07%.
Interestingly, the S&P 500 is preparing to close its worst 1H since 1970, amid the 40-year high inflation, rising interest rates, a slowing economy, supply chain constraints, COVID-led pullbacks, and the Russia-Ukraine war. The S&P 500, despite being firmly in the bear market, might not have bottomed yet. About 72% of investors participating in a survey expect the S&P 500 to trough at around 3300 points.
Meanwhile, investors are waiting anxiously for the Federal Reserve’s July, during which another 75 basis-point interest rate hike is expected. On Thursday, market watchers are looking forward to the weekly jobless claims, which economists are expecting to be around 230,000 for first-timers, according to Dow Jones. Moreover, key economic data for personal income and spending will also be released later on Thursday.
