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Stock Market Today – Tuesday, Aug 02: What You Need to Know

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Stocks finished Tuesday’s session in the red after tensions between the U.S. and China increased following Pelosi’s visit to Taiwan. In addition, several Federal Reserve Presidents commented today that the central bank is not done raising rates. This follows a JOLTs report that came in much worse than expected.

Stocks Finish Tuesday’s Trading Session in the Red

Last Updated 4:30 PM EST

Stock indices finished today’s trading session in the red. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 decreased by 1.23%, 0.67%, and 0.3%, respectively. Investor sentiment was negative due to heightened tensions between the U.S. and China following Nancy Pelosi’s visit to Taiwan. China had warned the U.S. to avoid the visit to Taiwan since China views it as part of its territory.

Furthermore, comments from Federal Reserve Presidents dismissed the idea that the central bank was ready to stop raising rates. Indeed, they claim that there is still a lot of work to be done in order to bring down inflation to the 2% target. Thus, they want to see more evidence of an inflationary peak before they stop raising rates.

As a result, the U.S. 10-Year Treasury yield spiked to 2.75%, an increase of 17.3 basis points. The same can be said about the Two-Year Treasury yield, which shot up 18.4 basis points to 3.06%. This brings the spread between them to -31 basis points. The negative spread indicates that investors still have fears of a recession.

In addition, the market is now pricing in a higher chance of a higher Fed Funds rate for the end of the year when compared to yesterday. In fact, the market’s expectations for a rate in the range of 3.5% to 3.75% increased to 30.1%, which is up from yesterday’s expectations of 16.1%. Moreover, the market is now also assigning an 18.4% probability to a range of 3% to 3.25%. For reference, investors had assigned a 34.8% chance on Monday.

Prices at the Pump Continue to Decline

Last Updated 3:20PM EST

Stock indices are in the red heading into the final 40 minutes of today’s trading session. As of 3:20 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 1%, 0.4%, and 0.1%, respectively.

WTI crude oil is currently hovering around $94 per barrel, as it trades closer to its session low of $92.62 per barrel than the session high of $96.41. The price has pulled back considerably from last week’s high of $101.87 per barrel.

Consumers will be happy to see that the commodity’s continued downtrend has led to lower gas prices across the country. The national average for regular gas was last $4.189 per gallon, down from yesterday’s reading of $4.212. 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 $5.588 per gallon. On the other hand, Texas is the state with the lowest gas price, at $3.691 per gallon.

It’s likely that this downward trend will continue going forward as the Federal Reserve looks to raise interest rates to fight inflation. However, higher rates will destroy demand throughout the whole economy.

JOLTs Report Comes in Worse than Expected

Last Updated 12:15 PM EST

On Tuesday, the Bureau of Labor Statistics released its JOLTs Job Openings report, which helps measure job vacancies in the U.S. The number came in at 10.698 million job openings for June, below the expected 11 million. This is significantly lower than the previous report, which saw 11.303 million job openings, and marks the third consecutive month of declines.

It’s important to remember that this data is for June, thus, making it a lagging indicator. Since then, many companies have announced that they will reduce their workforce in order to cut costs, which provides evidence that this downward trend is likely to continue.

Nevertheless, stock indices are mixed halfway into today’s trading session. As of 12:15 p.m. EST, the S&P 500 and the Nasdaq 100 are up 0.2% and 0.4%, respectively. Meanwhile, the Dow Jones Industrial Average is down 0.2%.

The consumer staples sector (XLP) is the laggard so far, as it is down 0.3%. Conversely, the healthcare sector (XLV) is the session’s leader, with a gain of 0.7%.

In addition, recession fears continue to keep WTI crude oil under $100 per barrel. However, the commodity is trading slightly higher today at around $95 per barrel. This equates to an increase of slightly more than 1.5%

Stocks are in the Red to Start Tuesday’s Trading Session

Last Updated 10:00AM EST

Stock indices are in the red 30 minutes into today’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%, 0.7%, and 0.6%, respectively.

The materials sector (XLB) is the laggard so far, as it is down 1.2%. Conversely, the utilities sector (XLU) is the session’s leader with a gain of 0.4%.

WTI crude oil remains below $100 per barrel as markets worry about a potential slowdown in manufacturing in China and Europe. As a result, the price is hovering around the low-$94 per barrel range, up roughly 0.5% from the previous close.

Meanwhile, bond yields are higher, as the U.S. 10-Year Treasury yield is now hovering around 2.61%. This represents an increase of more than three basis points from the previous close.

Similar movements can be seen with the Two-Year yield, which is now at 2.95%. However, the spread between the 10-Year and Two-Year U.S. Treasury yields is still negative and widening, as it currently sits at -34 basis points.

Pre-Market Update

Stock futures dipped amid mounting concerns of a sharp economic slowdown. Moreover, investors are also anxious about the upcoming key economic data and earnings reports from major corporates this week.

Futures of the Dow Jones Industrial Average (DJIA) lost 0.34%, while those of the S&P 500 (SPX) moved 0.46% lower, as of  2.02 a.m. EST, Tuesday. Meanwhile, the Nasdaq 100 (NDX) futures retracted by 0.43%.

Pinterest (PINS) released lackluster second-quarter earnings results on Monday. However, highly regarded activist investor Elliot Management’s simultaneous announcement saying that it is the largest investor in the company saved PINS stock from falling. The stock price soared more than 21% in the after-hours trading session.

The after-hours movement came after the major stock averages ended in the red on the first day of August. On Monday, the S&P 500 closed 0.28% lower led by a decline in oil prices, while the Nasdaq 100 inched down 0.06%. On the other hand, the Dow shed 0.14%.

Seven S&P sectors ended Monday’s session in the negative, led by energy which dropped more than 2% as oil prices dipped.

The Uncertain Economic Background

The strong relief rally in July does not seem to convince investors that the bear market is over, as the headwinds are too strong. The fear of a recession lasting longer than that of 2020 still looms large. The economic data coming out in regular intervals isn’t giving any significant reason to rejoice.

On Monday, surveys of purchasing managers revealed that the U.S. manufacturing industry was the slowest in two years this July. However, the slight easing of commodity prices provided some respite from the constant worry, indicating that the Fed’s hawkishness might be starting to bring results.

Later this week, the July nonfarm payroll data will released on Friday. This report will give investors a further view of the job market.

Eco-Political Struggles

As if these are not enough, the Biden administration is now having to make amends to the exorbitant tariffs made by the Trump administration on about $350 billion worth of Chinese goods.

On Monday, the government reached its deadline to defend Trump’s China tariffs, after the former administration faced legal suits from numerous American importers in September 2020.

If the present government cannot justify the tariffs, then it may have to reassess scores of public grievances on tax penalties or even reimburse the aggrieved parties. This will add a new blow to the government that is already bogged down by geopolitical and other economic concerns.

Amid such a tense environment, House Speaker Nancy Pelosi expressed her intention to meet government officials in Taiwan this week, despite Beijing’s warnings against taking such a step. With the geopolitical situation already sensitive, Pelosi’s visit might fuel further tensions between the U.S. and China.

Moreover, Monday also saw Senators actively evaluating the climate, prescription drug, and tax plans and their impact on inflation and tax burdens on citizens.

Included in the climate bill is a recent deal between Senate Majority Leader Chuck Schumer and centrist Senator Joe Manchin. The Mountain Valley Pipeline project, which might be permitted as part of the deal, will link gas producers in Manchin’s home state to buyers from other states. 

However, Republicans are not convinced, arguing that the bill will not bring down inflation and will likely be detrimental to the economy.

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