Stocks Finish Wednesday’s Session in Positive Territory
Last Updated 4:25 PM EST
Stock indices finished Wednesday’s trading session in positive territory. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 increased 0.23%, 0.36%, and 0.62%, respectively.
The energy sector was the session’s laggard, as it declined by 1.69%. Conversely, the utilities sector was the session’s leader, with a gain of 1.05%. In addition, WTI crude oil remained under $100 per barrel as markets are anticipating lower demand as a result of a potential recession. At around $98 per barrel, it is off the session low of $95.13.
Furthermore, Treasury yields jumped today, with the U.S. 10-Year Treasury yield at 2.928%, an increase of 11.9 basis points. However, the Two-Year Treasury yield saw a sharper increase, resulting in a yield of 2.97%. This brings the spread between them to -4.2 basis points. A flat or inverted yield curve is unfavorable for banks as it tends to hurt net interest margins.
Interestingly, the market is now 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 3.5% to 3.75% increased to 28.5%, which is up from yesterday’s expectations of 14.9%.
ISM Non-Manufacturing PMI Beats Expectations
Last Updated 3:00 PM EST
Equity markets are in the green heading into the final hour of Wednesday’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 0.5%, 0.7%, and 1.1%, respectively.
On Wednesday, the Institute for Supply Management released its monthly report for the ISM Non-Manufacturing Purchasing Managers’ Index, which measures the overall economic condition of the non-manufacturing sector.
A number over 50 represents an expansion, whereas anything below 50 signals a contraction. The report came in at 55.3, better than the expected 54.3, but still lower than last month.
It’s worth noting that this indicator has been slowly trending lower ever since its peak in December 2021, when it hit a high of 69.1. If this trend continues, it might not take long before the non-manufacturing sector enters into contraction.
Indeed, the ISM Non-Manufacturing Employment report came in at 47.4, indicating that the number of jobs is starting to contract. This is consistent with what was reported in the ISM Manufacturing Employment report from last week. It also provides clues for next month’s JOLTs report, suggesting that it will continue on its downward trend.
Wednesday’s JOLTs Report Comes in Better than Expected
Last Updated 12:10 PM EST
Stocks are negative halfway into Wednesday’s trading session. As of 12:10 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.5%, 0.4%, and 0.2%, respectively.
The energy sector (XLE) is the laggard so far, as it is down almost 3.5%. Conversely, the utilities sector (XLU) is the session’s leader, with a gain of 0.4%.
In addition, recession fears continue to put pressure on WTI crude oil, as it has fallen to around $96 per barrel, representing a decline of more than 4% from its previous close.
On Wednesday, 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 11.254 million job openings for May, above the expected 11 million.
Although slightly lower than the previous report, job openings are still near their highs. However, the number has declined for three straight months, and it will be interesting to see if this trend continues as rates continue to rise while growth slows down.
In addition, it’s important to remember that this data is for May, thus, making it a lagging indicator. Since then, many companies have announced that they will reduce their workforce in order to cut costs.
U.S. Treasury Yields Flash Recession Warning
Last Updated 10:00 AM EST
Stocks are positive 30 minutes into Wednesday’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 0.1%, 0.1%, and 0.3%, respectively.
The energy sector (XLE) is the laggard so far, as it is down 1.4%. Conversely, the real estate sector (XLRE) is the session’s leader with a gain of 1%.
WTI crude oil is down over 2% to roughly $98 per barrel as its downward momentum continues. Meanwhile, the U.S. 10-Year Treasury yield is hovering around 2.82%, up slightly from yesterday’s close.
The spread between the 10-Year and Two-Year U.S. Treasury yields is now negative, as the Two-Year yield is 2.85%. This is viewed as a recession indicator that is widely tracked by investors and echoes the market’s sentiment.
In addition, the Mortgage Bankers Association released its weekly report for the U.S. 30-Year mortgage rate. The mortgage rate decreased to 5.74% from last week’s 5.84%.
Despite the lower rates, the number of mortgage applications decreased week-over-week by 5.4%. This follows last week’s increase of 0.7%, indicating that homebuyers may be worried about a recession as sentiment and economic data continue to worsen.
As a result, the mortgage application volume is down substantially on a year-over-year basis, with the Mortgage Market Index at 305.3 compared to last year’s 627.
Pre-Market Update
U.S. stock futures declined early Wednesday morning ahead of the release of the Federal Reserve’s meeting summary later in the day.
Futures on the Dow Jones Industrial Average (DJIA) shed 0.35%, while those on the S&P 500 (SPX) declined 0.42%, as of 8:15 a.m. EST, Wednesday. Meanwhile, the Nasdaq 100 (NDX) futures dipped 0.62%.
On Tuesday, the benchmark 10-year U.S. Treasury yield dropped below the 2-year bond yield, leading to an inverted yield curve. This trend has historically preceded a recession. Nonetheless, by rule of thumb, stock prices got a boost around midday.
At the end of the regular trading hours on Tuesday, the Dow had shed 0.42%. The losses were partially offset by the midday rally. Meanwhile, the S&P 500 was up 0.16% and the tech-heavy Nasdaq 100 rallied 1.68%.
However, anxiety was simmering in the market about the expanding list of indications toward a recession, and the possibility of a tighter policy in the July meeting.
The potential economic downturn was also reflected in the price of oil, which slumped below $100 per barrel on Tuesday. The oil and energy sector tumbled 4% in response. Despite the Russia-Ukraine war raging on, traders are more attentive to the possible economic slowdown, for now. The reduction in consumer spending and industrial orders (as indicated by various data sets), is threatening to cool demand for fuel.
Nonetheless, many analysts are expecting the recession to be mild, which is a breather.
Key Data Due on Wednesday
The Fed is expected to make another steep interest rate hike for July, easily 75 basis points, if not more. The central bank has reiterated several times that they are prioritizing inflation despite the risk of a recession.
Apart from the Fed’s meeting minutes, investors are also awaiting the latest mortgage purchase index by the Mortgage Bankers Association on Wednesday. Among the other economic data scheduled for release on Wednesday are the manufacturing PMI data (purchasing manager’s index) by the Markit Institute for Supply Management, and the results of the Job Openings and Labor Turnover Survey (JOLTS).
