Pre-Market Brief: Stocks Retreat As Recession Fears Weigh On Sentiment

March S&P 500 futures (ESH23) are trending down -0.98% this morning after three major U.S. benchmark indices closed sharply lower on Thursday, with both the Dow and S&P 500 posting their biggest daily percentage decline in weeks, as market participants fretted that the Fed's higher-for-longer stance on interest rates could lead to a recession. Three major U.S. stock indexes were weighed down primarily by losses in the Technology, Basic Materials, and Industrials sectors.

The U.S. Federal Reserve hiked interest rates by 50 basis points on Wednesday, downsizing from the 0.75% rate hikes seen at the prior four meetings. At the same time, Fed Chair Jerome Powell said recent signs of cooling inflation were not enough to convince the policymakers that inflation was on its downward trajectory to the 2% target. The Fed projected continued rate hikes to above 5% in 2023, higher than expected just a few months ago, stoking fears that the central bank’s aggressive policy will push the economy into a recession next year.

“That is what is a concern for the market, that the Fed is going to overreach. What the market is saying is if you continue this way, a recession is basically a done deal,” said Quincy Krosby, a chief global strategist at LPL Financial in Charlotte, North Carolina.

Data on Thursday revealed that retail sales fell more than expected in November, while new unemployment claims dropped last week and were lower than expected.

Meanwhile, U.S. rate futures have priced in a 71.9% chance of a 25 basis point rate increase and a 28.1% chance of a 50 basis point hike at February's monetary policy meeting.

Today, all eyes are focused on the U.S. S&P Global Composite PMI preliminary data in a couple of hours. Economists, on average, forecast that December S&P Global Composite PMI will stand at 47.0, compared to the previous value of 46.4.

Also, investors are likely to focus on the U.S. Manufacturing PMI preliminary data, which was at 47.7 in November. Economists foresee the new figure to remain steady at 47.7.

U.S. Services PMI preliminary data will be reported today as well. Economists estimate this figure to be 46.8 in December, compared to the previous value of 46.2.

In the bond markets, United States 10-Year rates are at 3.490%, up +1.14%.

The Euro Stoxx 50 futures are down -0.81% this morning, extending the previous session’s selloff following the ECB’s hawkish message, with investors digesting a batch of important regional economic data. The European Central Bank extended its hiking cycle on Thursday, increasing interest rates by 50 basis points to 2.50%, in line with expectations. Also, ECB President Christine Lagarde pointed to further monetary policy tightening ahead in the battle against inflation. At the same time, the Bank of England hiked its interest rate by half a point to 3.5%, delivering its ninth consecutive rate increase and signaling more hikes ahead to tackle runaway inflation. This, coupled with weak economic data, fueled fears of a potential global recession.

U.K. Retail Sales, France Manufacturing PMI (preliminary), France Services PMI (preliminary), Germany Manufacturing PMI (preliminary), Germany Services PMI (preliminary), Eurozone Manufacturing PMI (preliminary), Eurozone S&P Global Composite PMI (preliminary), Eurozone Services PMI (preliminary), U.K. Manufacturing PMI (preliminary), U.K. Services PMI (preliminary), and Eurozone CPI data were released today.

U.K. November Retail Sales data has been reported at -0.4% m/m and -5.9% y/y, weaker than expectations of +0.3% m/m and -5.6% y/y.

The French December Manufacturing PMI stood at 48.9, stronger than expectations of 48.2.

The French December Services PMI came in at 48.1, weaker than expectations of 49.1.

The German December Manufacturing PMI was at 47.4, stronger than expectations of 46.3.

The German December Services PMI stood at 49.0, stronger than expectations of 46.3.

Eurozone December Manufacturing PMI came in at 47.8, stronger than expectations of 47.1.

Eurozone December S&P Global Composite PMI was at 48.8, stronger than expectations of 48.0.

Eurozone December Services PMI stood at 49.1, stronger than expectations of 48.5.

U.K. Manufacturing PMI came in at 44.7, weaker than expectations of 46.5.

U.K. Services PMI was at 50.0, stronger than expectations of 49.2.

Eurozone November CPI has been reported at -0.1% m/m and +10.1% y/y, compared to expectations of -0.1% m/m and +10.0% y/y.

Asian stock markets today closed in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.02%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -1.87%.

China’s Shanghai Composite today closed lower after the U.S. government added 22 major Chinese firms to a trade blacklist on Thursday, extending its crackdown on China’s semiconductor industry. Also, Chinese indexes ended the week in the red as rising COVID-19 cases in the country bolstered concerns over a delayed economic reopening.

At the same time, Japan’s Nikkei 225 Stock Index closed sharply lower, with industrial stocks losing the most after data showed the country’s manufacturing sector shrank more than expected in December. The index's downward momentum was fueled by losses in the Electrical/Machinery, Machinery, and Chemical sectors. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 4.68% and hit a new 52-week low of 16.31.

Pre-Market U.S. Stock Movers

Adobe Systems Incorporated (ADBE) climbed over +4% in pre-market trading after the company reported favorable Q4 results and provided a strong Q1 outlook.

Guardant Health Inc (GH) tumbled more than -32% in pre-market trading after the company released results from its ECLIPSE study for colorectal cancer in average-risk adults.

EXACT Sciences Corporation (EXAS) jumped about +18% in pre-market trading following the ECLIPSE results from rival GH.

Agrify Corp (AGFY) plunged about -20% in pre-market trading after the company announced the launch of an underwritten public offering of its shares and pre-funded warrants to purchase shares.

Outbrain Inc (OB) gained over +7% in pre-market trading after the company authorized a $30M share repurchase program.

Mullen Automotive Inc (MULN) rose over +4% in pre-market trading, adding to 19% intra-day gains after the company received a $200M purchase order for 6,000 EV cargo vans from Randy Marion.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Friday - December 16th

Accenture (ACN), Darden Restaurants (DRI), Sprott Physical Gold and Silver Trust (CEF), Winnebago Industries (WGO), Uranium Energy (UEC), Mitek (MITK), GoGold Resources Inc. (GLGDF), NASB (NASB), Oramed (ORMP), Mesabi Trust (MSB), Byrna Technologies (BYRN), ShiftPixy (PIXY), Citius Pharma (CTXR), Inotiv (NOTV), Champions Oncology (CSBR), PharmaCyte Biotech (PMCB), Butler National (BUKS).

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