Stocks Finish Wednesday’s Session Relatively Flat
Last Updated 4:15 PM EST
Stock indices finished Wednesday’s trading session relatively flat. The Dow Jones Industrial Average and the Nasdaq 100 closed higher by 0.27% and 0.18%, respectively. Meanwhile, the S&P 500 fell 0.07%.
The energy sector (XLE) was today’s worst performer, as it finished down 3.48%. Conversely, the healthcare sector (XLV) was the session’s leader with a gain of 0.87%.
WTI crude is currently hovering around $109 per barrel, which is near the session’s lows. This is after hitting a high of $114 per barrel earlier on in the day.
Furthermore, Treasury yields plummeted today, with the U.S. 10-Year Treasury yield at 3.097%, a decrease of 7.8 basis points. In addition, the Two-Year Treasury yield is at 3.059%, bringing the spread between them to only 3.8 basis points.
It appears that investors are fleeing to the safety of bonds after Jerome Powell warned that there is no guarantee that a “hard landing” could be avoided. Indeed, he stated that the risk of not stopping inflation was worse than the risk of causing a recession. This essentially means that the Federal Reserve will continue to increase interest rates until inflation comes under control.
Investors will be keeping an eye on tomorrow’s Core Personal Consumption Expenditure (PCE) Price Index, which is the Fed’s preferred measure of inflation. Thus, it tends to have more influence over Jerome Powell’s decisions than the CPI does.
Can the U.S. Economy Avoid Falling into a Recession?
Last Updated 3:00 PM EST
Stock indices are mixed, heading into the final hour of Wednesday’s trading session. As of 3:00 p.m. EST, the S&P 500 and the Nasdaq 100 are down 0.2% and 0.1%, respectively. Meanwhile, the Dow Jones Industrial Average is up 0.2%.
On Wednesday, the Bureau of Economic Analysis released its final estimate of real Gross Domestic Product (GDP) growth for the first quarter of 2022. Unfortunately, GDP contracted during Q1, as it came in at -1.6% on an annualized basis. This was slightly worse than the expected decline of -1.5%
A recession is generally defined as two consecutive quarters of negative GDP growth. This means that if the next quarter comes in negative as well, the U.S. will find itself in a recession.
Fortunately, it seems that the economy may be able to avoid one, at least for now. The Atlanta Federal Reserve’s GDPNow tool allows it to estimate GDP growth in real-time. Currently, the estimate is hovering around 0.26% growth for the second quarter.
However, it’s worth mentioning that the GDPNow estimate for Q1 was for a 0.37% increase, which we now know actually came in at -1.6%. Thus, it’s possible that the same thing can happen in Q2.
Mortgage Rates Fall Slightly Compared to Last Week
Last Updated 12:00PM EST
Stock indices are mixed halfway into Wednesday’s trading session. As of 12:00 p.m. EST, the Dow Jones Industrial Average and the Nasdaq 100 are up 0.2% and 0.21%, respectively. Meanwhile, the S&P 500 is down 0.1%.
On Wednesday, the Mortgage Bankers Association released its weekly report for the U.S. 30-Year mortgage rate. The mortgage rate decreased to 5.84% from last week’s 5.98%, which was the highest it had been since November 2008. Nevertheless, it is still significantly higher than the 3.2% mortgage rate from the same time last year.
As a result of the lower rates, the number of mortgage applications increased week-over-week by 0.7%. This follows last week’s increase of 4.2%, indicating that homebuyers may be trying to lock in the current rates before the Federal Reserve pushes them higher with more aggressive rate hikes.
Nevertheless, mortgage application volume is down substantially on a year-over-year basis, with the Mortgage Market Index at 322.7 compared to 638.8 in June 2021.
Furthermore, the lower rates caused the U.S. Mortgage Refinance index to tick up this week, as it increased to 726.1 versus last week’s print of 712.7. However, similar to mortgage application volume, refinancing activity has plummeted year-over-year. Indeed, the index was at 2856.6 during the comparable week in 2021.
Stocks are Green to Start Wednesday’s Trading Session
Last Updated 10:00AM 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 0.4%, 0.05%, and 0.1%, respectively.
The real estate sector (XLRE) is the laggard so far, as it is down 1.3%. Conversely, the consumer staples sector (XLP) is the session’s leader, with a gain of 0.6%.
WTI crude oil is currently in the green ahead of an OPEC meeting, as it continues to recover from its recent slide. The price is hovering around $113 per barrel, which is well off its previous week’s low of $101.56 per barrel. Still, it has quite a bit of room to rise in order to match its recent high of $123.66.
Meanwhile, bond yields are slightly lower as the U.S. 10-Year Treasury yield is now hovering around 3.164%. This represents a decline of 1.1 basis points from yesterday’s close but a significant increase from last week’s low of 3%.
Similar movements can be seen with the Two-Year yield, which is now at 3.128%. Nevertheless, the spread between the 10-Year and Two-Year U.S. Treasury yields remains narrow, as it currently sits at 3.6 basis points.
Pre-Market Update
Stock futures fell early Wednesday morning as investors failed to sustain the rally earlier on Tuesday after another slew of disappointing economic data.
Futures on the Dow Jones Industrial Average (DJIA) inched down 0.01%, while those on the S&P 500 (SPX) edged 0.06% lower, as of 3.30 a.m. EST, Wednesday. Meanwhile, the Nasdaq 100 (NDX) futures dipped 0.10%.
The markets continue to be volatile amid numerous economic concerns like the Russia-Ukraine war, inflation, recession, high interest rates, supply chain issues, etc. Presently, investor sentiments are highly sensitive and are swinging to the extremes with any news, positive or negative.
What Happened on Tuesday
Investors failed to hold on to the rally earlier on Tuesday, and by closing time the Dow Jones had dropped 1.56%, while the S&P 500 and Nasdaq 100 slipped 2.01% and 3.09% respectively.
These losses were in response to a lower-than-expected consumer confidence index report and a decline in consumer near-term outlook for the month of June. The consumer confidence index, which considers America’s stance on the future of the job market and the economy, came at 98.7, which was lower than the Dow Jones’s estimate of 100. This means that consumers are getting increasingly wary of the job market.
Moreover, the Conference Board’s consumer-confidence survey revealed that American consumers’ short-term outlook for the economy was also dismal, having declined to its lowest in about 10 years. This sentiment mainly reflected concerns about the rising inflation, especially food and gas prices, both of which are essential commodities with little chance of cutting corners.
“Expectations have now fallen well below a reading of 80, suggesting weaker growth in the second half of 2022 as well as growing risk of recession by year-end,” noted Lynn Franco, senior director at the Conference Board.
Tuesday’s downtrend was also partially driven by a decline in tech behemoths like Nvidia (NVDA) and Advanced Micro Devices (AMD), both of which fell more than 6%, and Netflix (NFLX), Amazon (AMZN), and Meta Platforms (FB), each of which closed about 5% lower.
Investors are also watching out for any insightful comment by Federal Reserve Chairman Jerome Powell at the European National Bank forum on Wednesday.
