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Stock Market Today – Wednesday, August 31: What You Need to Know

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Stock indices finished today’s trading session in the red. ADP Nonfarm Employment Change misses expectations, while Chicago PMI slightly beats. In addition, Eurozone inflation continues to accelerate to new record highs.

Stocks Finish Wednesday’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 0.88%, 0.78%, and 0.57%, respectively.

The technology sector (XLK) was the session’s laggard, as it fell by 1.02%. Conversely, the communications sector was the session’s leader, with a gain of 0.26%. In addition, WTI crude oil lost 3.7%, reaching $88.90 per barrel.

Furthermore, the U.S. 10-Year Treasury yield increased to 3.19%, a gain of more than eight basis points. Similarly, the Two-Year Treasury yield also increased, as it hovers around 3.49%. This brings the spread between them to -30 basis points. The negative spread indicates that investors still have fears of a recession.

Compared to seven days ago, the market is pricing in a higher 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 68%, which is up from last week’s expectations of 37.3%. In addition, the market is now also assigning a 1.7% probability to a range of 3.25% to 3.5%. For reference, investors had assigned a 15.9% chance seven days ago.

Mortgage Applications Decreased from the Previous Week

Last Updated 3:00PM EST

Stocks are in the red 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 0.7%, 0.6%, and 0.5%, respectively.

The materials sector (XLB) is the laggard so far, as it is down 1.2%, while the best-performing sector, communications (XLC), is up 0.5%.

Meanwhile, the U.S. 10-Year Treasury yield is hovering around 3.13%, which is up 2.4 basis points compared to yesterday’s close. The spread between the 10-Year and Two-Year U.S. Treasury yields remains negative, as it currently sits at -32 basis points.

On Wednesday, the Mortgage Bankers Association released its weekly report for the U.S. 30-Year mortgage rate. The mortgage rate increased to 5.8% compared to last week’s reading of 5.65%.

Due to the higher rates, the number of mortgage applications decreased week-over-week by -3.7%, following last week’s decrease of -1.2%. This indicates that sentiment in the real estate market is falling, which is consistent with other data that has been released so far.

In addition, mortgage application volume is down substantially on a year-over-year basis, with the Mortgage Market Index at 260.1 compared to 719.4 on September 1, 2021.

ADP Nonfarm Employment Change Misses Expectations; Chicago PMI Slightly Beats

Last Updated 12:00PM EST

Equity markets are in the green halfway into the trading session. As of 12:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 0.03%, 0.2%, and 0.3%, respectively.

On Wednesday, Automatic Data Processing (NASDAQ: ADP) released its Nonfarm Employment Change report, which is the change in non-farm, private employment on a month-over-month basis.

The number came in at 132,000 for the month of August – well below the expected 300,000. The figures reported by ADP have been downtrending since the start of 2022, with the most recent release being the lowest print year-to-date. This suggests that hiring might be slowing down in the U.S. economy as companies continue to face macroeconomic uncertainties.

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 August, as the number came in at 52.2. This was better than the expected 52 from forecasters and a slight increase from last month’s report of 52.1. However, it’s worth noting that the Chicago PMI has also been trending lower since its peak of 75.2 back in May 2021.

Eurozone Inflation Continues to Accelerate

Last Updated 10:00AM EST

Equity markets are in the green after the first 30 minutes of 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 up 0.01%, 0.2%, and 0.7%, respectively.

On Wednesday, Eurostat released its preliminary estimate for Eurozone inflation. The Eurozone Consumer Price Index (CPI), which measures the change in the price of goods and services from a consumer’s perspective, came in hotter than expected. Economists had forecast growth of 9%. Unfortunately, the CPI print was 9.1% on a year-over-year basis.

This marks yet another accelerating increase in the Eurozone inflation rate. Indeed, the CPI growth rate has been increasing consistently since February 2021. The increase can be attributed to energy and food prices, which continue to be impacted by the war in Ukraine.

However, when stripping out energy and food prices, Core CPI was 4.3% on a year-over-year basis. This also accelerated from the previous month, making it the highest increase since the European Union was formed.

This will increase the pressure put on the European Central Bank to raise interest rates to combat inflation. However, raising rates too high would cause a ripple effect in global markets that would impact North American equities as well.

Pre-Market Update

Stock futures are pointing to a positive opening today after yesterday’s third consecutive drop in broader indices.

Futures on the Dow Jones Industrial Average (DJIA) are up 0.68%, while those on the S&P 500 (SPX)  are up 0.71% as of 2.07a.m. EST, Wednesday. Tech bellwether NASDAQ 100 (NDX) futures are up 0.87% after the index’s 1.12% drop yesterday. The Dow and the S&P 500 declined 0.96% and 1.10%, respectively, on Tuesday.

Could More Rate Hikes be in the Cards?

While Fed Chair Jerome Powell’s comments last week caused tremors in the market, yesterday John Williams, the New York Fed President, commented that interest rates should be “somewhat restrictive” to slow demand, indicating interest rates could stay elevated until inflation is tamed.

Throughout the day, the market can be expected to take cues from the ADP Jobs Report at 8.15 a.m., the Chicago PMI at 9.45 a.m., the EIA Petroleum Inventories at 10.30 a.m., and Farm Price numbers at 3 p.m. The Chicago PMI remains a key barometer of how businesses are faring in the current environment.

Moreover, two important speeches today from the new President and CEO of the Dallas Fed, Lorrie K. Logan, at 6 p.m. and the President and CEO of the Atlanta Fed, Dr. Raphael W. Bostic, will also be key events to watch.

Equities and Cryptos Alike Feel the Pressure

The U.S. 10-year Treasury Yield is now at 3.101%, up from 2.7910% only two weeks ago. In China, manufacturing contracted for the second month in a row as lockdowns and power shortages take a toll on its economy.

As the tech world continues to make noise about hiring slowdowns and job cuts, SNAP (SNAP) (GB:0RNH) looks set to join the trend with a 20% headcount trim. The company plans to focus its efforts on community growth, revenue growth, and augmented reality. It’s also winding down products and features, which include Zenly and Voisey. Investors appear to like this development as the stock was up following the announcement.

In addition, a large number of workers moderating content for Facebook (META) in the U.S. are also looking at job cuts, as the company looks to source this work from Singapore.

The weakening market confidence is also spilling into the crypto world, with Bitcoin (BTC-USD) and Ethereum (ETH-USD), the two leading cryptocurrencies, down ~6% each over the past five days, even as the crypto community remains excited about the Ethereum Merge next month.

While investors may look to take advantage of the current market weakness, the next direction for the market will possibly be set at the next Fed meeting on September 13.

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