Stocks Finish Tuesday’s Session in Negative Territory
Last Updated 4:15PM 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 0.47%, 0.22%, and 0.07%, respectively.
The real estate sector (XLRE) was the session’s laggard, as it fell by 1.46%. Conversely, the energy sector remained the session’s leader throughout the day and finished with a gain of 3.61%. This was due to WTI crude oil, which gained 3.3% to hit $93.58 per barrel.
Furthermore, the U.S. 10-Year Treasury yield increased to 3.06%, a gain of 4.2 basis points. On the other hand, the Two-Year Treasury yield decreased, as it hovers around 3.3%. This brings the spread between them to -24 basis points. The negative spread indicates that investors still have fears of a recession.
Compared to yesterday, the market is pricing in a slightly higher chance of a lower 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% decreased to 29.8%, down from yesterday’s expectations of 31.2%. In addition, the market is now also assigning a 20.8% probability to a range of 3.25% to 3.5%. For reference, investors had assigned a 19.9% chance yesterday.
New Home Sales Come in Worse Than Expected
Last Updated 3:00PM EST
Stock indices are mixed halfway into today’s trading session. As of 3:00 p.m. EST, Nasdaq 100 was up 0.2%. Meanwhile, the S&P 500 and the Dow Jones Industrial Average are down 0.1% and 0.4%, respectively.
As interest rates rise to combat inflation, many have become increasingly concerned about the real estate market. These fears may be justified if current trends continue.
On Tuesday, the Census Bureau released its United States New Home Sales data, which came in at 511,000. For reference, forecasters were expecting a print of 575,000. This was also significantly lower than last year’s figure of 729,000. The New Home Sales metric measures the number of single-family homes sold in the prior month (on an annualized basis).
It’s worth noting that the overall trend in sales is in decline, which is occurring during a period of rising inventory. At the beginning of the year, the supply of houses was 5.6 months. However, in July 2022, the supply increased to 10.9 months. In contrast, the supply in July 2021 was only six months.
The reduced activity from buyers can be attributable to higher interest rates, which have made mortgage payments more expensive and more difficult to qualify for. The rising inventory may also be caused by higher interest rates, as those with variable mortgages are seeing their monthly payments increase as well. Thus, affordability may be an issue for the sellers as well.
Furthermore, homeowners may be selling in anticipation of an economic slowdown, which would also put pressure on home prices. Therefore, some may be trying to cash in while they still can. Nevertheless, the trend is clear: the real estate market is slowing down.
Preliminary Manufacturing PMI Comes in Lower than Expected
Last Updated 12:00PM EST
Stock indices are mixed halfway into today’s trading session. As of 12:00 p.m. EST, Nasdaq 100 was up 0.1%. Meanwhile, the S&P 500 and the Dow Jones Industrial Average are down 0.1%, and 0.4%, respectively.
The healthcare sector is the laggard so far, as it is down 1.4%. Conversely, the energy sector is the session’s leader, with a gain of 3.7%.
On Tuesday, Markit released its preliminary report for the U.S. Manufacturing Purchasing Managers Index, which measures the month-over-month change in manufacturing activity. A number over 50 represents an expansion, whereas anything below 50 represents a contraction. The report came in at 51.3, lower than the expected 52.
It’s worth noting that this indicator has been downtrending ever since its peak in August 2021, when it hit a high of 63.4. If this trend continues, it might not take long before the manufacturing sector sees a contraction in activity.
Indeed, the Federal Reserve is trying to destroy demand in order to cool down inflation. Although it is attempting a soft landing, it’s more likely that it will tighten too far. As a result, the manufacturing sector will likely be a casualty.
Stocks are Mixed to Start Today’s Trading Session
Last Updated 10:00AM EST
Stock indices are mixed 30 minutes into today’s trading session. As of 10:00 a.m. EST, the Dow Jones Industrial Average was down 0.1%. Meanwhile, the S&P 500 and the Nasdaq 100 are up 0.2%, and 0.4%, respectively.
The healthcare sector (XLV) is the laggard so far, as it is down 1.2%. Conversely, the energy sector (XLE) is the session’s leader, with a gain of 3.7%.
WTI crude oil is above $90 per barrel, as supply worries are causing prices to climb in today’s session. This comes after Saudi Arabia suggested a cut in production by OPEC+ in order to support prices. If oil supplies become a concern again, it won’t take long for inflation to accelerate once again.
Meanwhile, bond yields are higher, as the U.S. 10-Year Treasury yield is now hovering around 3.042%. This represents an increase of 2.4 basis points from the previous close.
Conversely, the opposite can be seen with the Two-Year yield, which is now at 3.283%. However, the spread between the 10-Year and Two-Year U.S. Treasury yields is still negative, currently sitting at -24.1 basis points.
Pre-Market Update
Stock futures dipped early Tuesday morning ahead of the Federal Reserve’s economic symposium at Jackson Hole this Friday, as traders remained jittery about another large interest rate hike.
Futures on the Dow Jones Industrial Average (DJIA) inched 0.03% lower, while those on the S&P 500 (SPX) lost 0.06%, as of 3.37 a.m. EST, Tuesday. Meanwhile, the Nasdaq 100 (NDX) futures dipped 0.07%.
On Friday, Fed Chair Jerome Powell is expected to reinforce his support for another round of a 75-basis-point hike in September. This caused renewed concerns across the market.
Moreover, as the Jackson Hole symposium approaches, the 10-year Treasury yield crossed 3% on Monday for the first time in a month.
Last week, the minutes of the FOMC meeting of July divulged that the Fed is most likely to stick to its hawkish stance, willing to risk a recession in order to bring down inflation within the range of 2.25%-2.5% as soon as possible.
The highly uncertain market outlook is expected to keep the markets volatile for the rest of this year. Investors in the U.S. are still weighing the possibility of a tighter-policy-led recession against a strong job market. Experts are of the opinion that cautious sentiments are most likely to weigh the heaviest on big tech and consumer discretionary stocks.
On The Earnings Front
Sentiments during Monday’s extended trading were also mixed, with cloud-software platform provider Zoom (ZM) losing shares after trimming its full-year guidance, and cybersecurity player Palo Alto (PANW) gaining on solid quarterly results.
As the earnings season nears its close, the rally witnessed by Wall Street over the summer also started to lose steam. On Monday, all the three major indexes ended their worst trading day since June, as a result of a broad-based sell-off. The Dow, the S&P 500, and the Nasdaq 100 ended the regular trading session Monday lower by 1.91%, 2.14%, and 2.66%, respectively.
What’s in Store on Tuesday?
On Tuesday, Macy’s (M), Nordstrom (JWN), and Dick’s Sporting Goods (DKS) are expected to release their quarterly results.
With regard to economic data, July’s sales data for new homes is scheduled to be reported, which will give us further insight into the depth of the U.S. housing market ‘recession’.
Also, the manufacturing PMI (Purchasing Manager’s Index) for August is expected to be out, giving us a better view of how the manufacturing sector, which is also experiencing a slowdown, has been holding up this month.
