Stocks Fall on Concern Fed Will Need to Do More to Curb Inflation

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday closed down -0.75%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.54%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.74%.

U.S. stock indexes Wednesday closed moderately lower.  Higher T-note yields Wednesday weighed on stocks as the 10-year T-note yield climbed to a 2-week high of 2.95%.   Also, comments from JPMorgan Chase CEO Dimon weighed on stocks when he warned investors to prepare for an economic “hurricane” as restrictive Fed policy and the war in Ukraine create unprecedented challenges.

Stronger-than-expected U.S. economic data Wednesday on JOLTS job openings and ISM manufacturing activity showed strength in the economy. However, the stronger economy may prompt the Fed to be more aggressive in tightening monetary policy.  Stocks recovered from their worst levels Wednesday after Richmond Fed President Barkin said the U.S. consumer is holding up, and he sees "no sign" of a U.S. recession in the economic data.

The Fed’s Beige Book said that in the month through May 23, "four of the Fed's twelve districts noted that the pace of growth had slowed since the prior period," and most districts noted strong, robust price growth.

San Francisco Fed President Daly said she's "comfortable" raising interest rates by 50 bp in the next two FOMC meetings, and she's not forecasting beyond July until she sees more data.

The U.S. May ISM manufacturing index unexpectedly rose +0.7 to 56.1, stronger than expectations of a decline to 54.5.

U.S. Apr construction spending rose +0.2% m/m, weaker than expectations of +0.5% m/m.

U.S. Apr JOLTS job openings fell -455,000 to 11.40 million, showing a stronger labor market than expectations of a decline to 11.35 million.

Today’s stock movers…

Albermarle (ALB) closed down more than -7% Wednesday to lead losers in the S&P 500 and Nasdaq 100 after Argentina customs set a reference price of $53 a kilogram for lithium carbonate exports to prevent under-invoicing and enhance transparency. Also, Argentina said it plans a retroactive tax fee for lithium producers. 

Medical device companies moved lower Wednesday on concern about increased regulations in the industry ahead of a two-day workshop later this month between the Federal Trade Commission and the Department of Justice to explore new approaches to enforcing antitrust laws in the pharmaceutical industry.  Idexx Laboratories (IDXX) closed down more than -5% to lead losers in the Nasdaq 100.  Also, Intuitive Surgical (ISRG), Dexcom (DXCM), and Align Technology (ALGN) closed down by more than -4%.

Airline stocks fell Wednesday on concern higher jet fuel costs will erode corporate profits after gasoline prices surged to a new all-time high.  As a result, Delta Air Lines (DAL) closed down by more than -5%, and United Airlines Holdings (UAL) closed down by more than -4%.  Also, American Airlines Group (AAL), Alaska Air Group (ALK), and Southwest Airlines (LUV) closed down by more than -3%.

S&P Global (SPGI) closed down -5% Wednesday after the company suspended financial guidance for the full year 2022, saying macroeconomic conditions have deteriorated since it last provided financial guidance on May 3.

Energy stocks and energy service providers moved higher Wednesday as crude rose, and gasoline posted an all-time high.  ConocoPhillips (COP) and Baker Hughes (BKR) closed up more than +3%.  Also, Phillips 66 (PSX), Valero Energy (VLO), Devon Energy (DVN), Marathon Oil (MRO), and Haliburton (HAL) closed up more than +2%. 

Salesforce (CRM) closed up more than +9% Wednesday to lead gainers in the S&P 500 and Dow Jones Industrials after reporting Q1 adjusted EPS of 98 cents, better than the consensus of 95 cents, and raised guidance on full-year adjusted EPS to $4.74-$4.76 from a previous forecast of $4.62-$4.64.

Across the markets…

September 10-year T-notes (ZNU22) on Wednesday closed down -26 ticks, and the 10-year T-note yield rose +9.1 bp to 2.935%. Sep T-notes Wednesday fell to a 2-week low, and the 10-year T-note yield rose to a 2-week high of 2.950%.  Weakness in German bunds weighed on T-note prices as the 10-year German bund yield jumped to a 3-week high Wednesday of 1.188% on hawkish ECB comments.  Also, Wednesday’s stronger-than-expected ISM manufacturing and JOLTS job openings reports weighed on T-note prices.