Stocks Fall Sharply on Global Economic Concerns

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Monday closed down -3.20%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.99%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -3.98%.

U.S. stock indexes Monday fell sharply for a third day, with the S&P 500 and Dow Jones Industrials dropping to a 13-month lows, and the Nasdaq 100 sinking to a 17-month low.  Stocks Monday extended last week’s plunge on concern that tighter Fed policy and persistent inflation will slow economic growth and lead to stagflation.  Stocks are also being undercut by concern that the war in Ukraine and Covid lockdowns in China will boost inflation and undercut economic growth. 

The 10-year T-note yield early Monday climbed to a 3-1/2 year high of 3.201%, which weighed on technology stocks, although the 10-year yield fell back from that high as a plunge in commodity prices eased inflation concerns.  Also, concern that a slowdown in China will undercut global growth prospects weighed on stocks after Chinese Premier Li Keqiang warned of a "complicated and grave" employment situation as Beijing and Shanghai tightened restrictions on residents to contain Covid outbreaks. 

Goldman Sachs Monday said the outlook for U.S. stocks isn’t particularly bright, even if an outright recession is avoided, as high inflation readings, a slowing economy, and aggressive tightening by the Fed have weighed on risk appetite and equity valuations.

Dovish comments from Atlanta Fed President Bostic were supportive for stocks as he pushed back on the need to raise interest rates as much as 75 bp at a single meeting when he said, "fifty basis points over the last 20 years is already a pretty aggressive move by the Fed.  I don't think we need to be moving even more aggressively."

Today’s stock movers…

Energy producers and energy service providers plunged Monday after crude prices sank more than -6% on Chinese demand concerns.  Apa Corp. (APA) closed down more than -14% to lead losers in the S&P 500.  Also, Marathon Oil (MRO) closed down by more than -14%, and Schlumberger (SLB) and Devon Energy (DVN) closed down by more than -11%.  In addition, Occidental Petroleum (OXY) and Haliburton (HAL) closed down by more than -10%, and ConocoPhillips (COP) and Diamondback Energy (FANG) closed down by more than -9%.

Tech stocks tumbled Monday on concern that a slowdown in China will undercut global growth.  Okta (OKTA) closed down more than -13%, and Crowdstrike Holdings (CRWD) closed down more than -12%.  Also, DataDog (DDOG), Zscaler (ZS), and Illumina (ILMN) closed down by more than -11%.  In addition, Advanced Micro Devices (AMD), Nvidia (NVDA), Atlassian Corp Plc (TEAM), and Tesla (TSLA) closed down by more than -9%.

U.S.-listed Chinese stocks moved lower Monday on growing concerns about China’s economic growth prospects after Chinese Premier Li Keqiang warned that China’s employment situation had turned “grave” because of Covid restrictions.  JD.com (JD), Baidu (BIDU), and Pinduoduo (PDD) closed down by more than -8%.  Also, Alibaba Group Holding (BABA) closed down by more than -5%, and NetEase (NTES) closed down by more than -3%.

Consumer staples goods makers rallied Monday as a plunge in the overall market prompted investors to buy defensive consumer staple stocks.  Newell Brands (NWL) closed up more than +7% to lead gainers in the S&P 500.  Also, Campbell Soup (CPB) and J.M. Smucker (SJM) closed up more than +3%, and General Mills (GIS) and Kellog (K) closed up more than +2%.  In addition, Kraft Heinz Foods (KHC) closed up more than +1% to lead gainers in the Nasdaq 100.

Covid vaccine makers moved higher Monday after BioNTech reported Q1 revenue of 6.37 billion euros, well above the consensus of 4.01 billion euros. BioNTech SE (BNTX) closed up more than +3%, and Moderna (MRNA) closed up more than +1%.

Across the markets…

June 10-year T-notes (ZNM22) on Monday closed up by +12.5 ticks, and the 10-year T-note yield fell -6.6 bp to 3.011%.  June T-notes Monday recovered from a 12-year nearest-futures low, and the 10-year T-note yield fell back from a new 3-1/2 year high today of 3.201%.  T-note prices erased overnight losses Monday and moved higher on less hawkish comments from Atlanta Fed President Bostic, who pushed back on the need to raise interest rates as much as 75 bp at a single meeting.

T-notes extended their gains Monday afternoon when inflation expectations declined after the 10-year breakeven inflation rate dropped to a 2-month low of 2.745%. T-note prices Monday initially extended last Friday’s losses on higher European government bond yields after the 10-year German bund yield rose to a 7-3/4 year high of 1.188%, and the 10-year UK gilt yield rose to a 6-1/2 year high of 2.074%.