Stocks Rise During Tuesday’s Trading Session
Last Updated 4:15PM EST
Stocks finished Tuesday’s trading session in the green. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 gained 2.15%, 2.45%, and 2.49%, respectively.
All sectors were in the green, as energy was today’s winner with a gain of 5.18%. Conversely, the communications sector is the session’s laggard, with a gain of 0.71%.
Today’s rebound could be the result of short-sellers who are covering their positions following last week’s sell-off. In fact, on a dollar amount basis, hedge fund short-selling last week hit levels not seen since 2008, according to Goldman Sachs.
If today’s rally is the result of short covering, it is likely that the overall downward trend will continue as recession fears pick up. Indeed, Federal Reserve Governor Christopher Waller said that he would support another 75 basis points rate hike in July.
The fear comes as many investors believe that the Fed Funds rate will have to be high enough to create a recession in order to bring down inflation. Interestingly, in a report published on June 17, 2022, researchers at the Federal Reserve Bank of New York believe that the probability of a “hard landing” is 80%.
Their model predicts negative GDP growth of -0.6% and -0.5% in both 2022 and 2023, respectively. For reference, GDP growth was expected to be positive during the previous forecast in March. In addition, the model also predicts higher inflation than previously believed, increasing from 2.8% to 3.8% in 2022, and from 2.2% to 2.5% in 2023.
Stocks are Green Heading into the Close; Oil Continues Downward Momentum
Last Updated 3:15PM EST
Stocks remain positive, heading into the final stretch of Tuesday’s trading session. As of 3:15 p.m. EST, The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 2.5%, 2.8%, and 3%, respectively.
All sectors are in the green as energy continues to outperform, with a gain of over 5%. Conversely, the communications sector is the session’s laggard, with a gain of just over 0.8%.
However, prices of WTI crude oil are lower as last week’s downward momentum continues. Prices are currently hovering around $109 per barrel.
North of the border, Statistics Canada released its month-over-month Core Retail Sales for the month of April. The report came in higher than expected at 1.3% versus the forecast of 0.6%. As the United States’ largest trading partner, the strength of the Canadian economy impacts American companies.
Thus, it is good to see that the Canadian consumer is spending above expectations. However, it’s important to note that this report has a two-month lag, meaning that the current number might be much lower than that of April. Indeed, April’s growth of 1.3% was only half of March’s 2.6%. It will be interesting to see what happens, going forward.
U.S. Home Sales Decline for the Fourth Straight Month
Last Updated 12:00PM EST
Stocks remain positive halfway through 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 1.7%, 2.3%, and 2.8%, respectively.
All sectors are in the green, with the energy sector as today’s best performer so far, gaining almost 4%. Conversely, the communications sector (XLC) is the session’s laggard with a gain of just over 1%.
On Tuesday, the National Association of Realtors released its U.S. Existing Home Sales report, which measures the change in sales of existing residential buildings during the previous month on an annualized basis. Existing home sales came in at 5.41 million for the month of May, above the expected 5.39 million.
Nevertheless, this figure was the lowest reading since June 2020, as existing home sales declined month-over-month in May by 3.4%, accelerating from the 2.6% decline in April. Indeed, this represents the fourth straight month of declines, as rising interest rates continue to push mortgage rates higher. On a year-over-year basis, sales fell by 8.6%.
It is likely that this downward trend will continue as the Federal Reserve continues to hike interest rates in order to combat inflation.
Stocks are in the Green Following Last Week’s Decline
Last Updated 10:00AM EST
Stocks begin Tuesday’s trading session in the green as the market tries to recover from last week’s sell-off. As of 10:00 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 1.7%, 2.4%, and 3%, respectively.
All sectors are positive after finishing negative in the week prior. The energy sector (XLE), which saw a decline of over 17% last week, is today’s best performer so far, as it is up over 4%. Conversely, the utilities sector (XLU) is the session’s laggard with a gain of around 1%.
Treasury yields saw a slight increase today, with the U.S. 10-Year Treasury yield at 3.281%. In addition, the Two-Year Treasury yield is at 3.192%, bringing the spread between them to only 8.9 basis points.
This spread is an important indicator closely followed by investors. Many view a negative spread between the 10-year and the two-year yields as a warning sign of a pending recession.
Furthermore, prices of WTI crude oil are flat after last week’s sell-off, as prices are now hovering around $110 per barrel, significantly lower than last week’s high of $123.66.
Pre-market Update
Stock futures gained upward momentum in the early morning hours of Tuesday, as investors evaluated the Federal Reserve’s aggressive monetary policy to tame the sizzling inflation, and its possible outcomes.
Futures contracts tied to the Dow Jones Industrial Average (DJIA) gained 1.71%, while those on the S&P 500 (SPX) climbed 1.91%, as of 5:47 a.m. EST, Tuesday. Meanwhile, the Nasdaq 100 (NDX) futures advanced 2.01%.
The major indexes had mixed endings at the closing bell on Friday, June 17, with the Dow losing 0.13% and the S&P 500 and Nasdaq 100 gaining 0.22% and 1.24% each. The markets were closed on Monday to observe Juneteenth.
Notably, two of the three major averages are now deeply in bear market territory, with the blue-chip-laden Dow just at the brink.
Recession Knocking on the Door?
The noise of a possible recession is getting louder as various economic data gets released. Investors are awaiting existing home sales data later on Tuesday, to get a little more insight into how the economy is handling the bear market. Preliminary data for June’s consumer sentiment index, released last week, signaled low consumer confidence. Moreover, retail spending is also showing trends of falling.
Importantly, the Wall Street Journal surveyed several economists, who collectively raised the probability of a recession in the next 12 months to 44%. Incidentally, the survey had apportioned 28% probability in April, so raising the number to 44% is quite a jump.
This is significant because historically, right before a recession, the probability has been much lower than this. For instance, just before the economy fell into a recession around December 2007 (lasting through 2009), this consensus probability had been at 38%. Again, in February 2020, right before the COVID-19-induced recession, a 26% probability had been assigned.
This indicates that either the economy is already in the early stages of a recession, or a recession is inevitable in just a matter of a few weeks.
Nonetheless, a little hope was provided by the Federal Reserve Bank of St. Louis president, James Bullard. “U.S. labor markets remain robust, and output is expected to continue to expand through 2022,” said Bullard. However, he did acknowledge significant risks due to the “uncertainty around the Russia-Ukraine war and the possibility of a sharp slowdown in China.”
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