What you need to know…
The S&P 500 Index ($SPX) (SPY) today is down by -2.71%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -2.46%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -3.19%.
Stocks today are sharply lower on unfavorable CPI and consumer sentiment reports, adding to Thursday’s sharp losses when the S&P 500 index plunged by -2.38% and the Nasdaq 100 index fell by -2.74%.
Today’s U.S. May CPI data was stronger than expected and added to concerns that the Fed will be forced to raise interest rates aggressively. Just today, the market added expectations for an extra +13 bp of Fed rate hikes by year-end. Today’s CPI report increased the risk that the Fed will be forced to put the U.S. economy into a recession by next year to cool inflation to acceptable levels.
Today’s May CPI report of +1.0% m/m and +8.6% y/y was stronger than expectations of +0.7% and +8.3%, respectively. Today’s May core CPI of +0.6% m/m and +6.0% y/y was slightly stronger than expectations of +0.5% and +5.9%, respectively. The headline May CPI rose to a new 40-year high of 8.6% y/y, but the core CPI eased to a 4-month low of +6.0% from 8.3% in April and March’s 40-year high of +8.5%.
The stock market was also undercut by today’s news that the University of Michigan’s preliminary-June U.S. consumer sentiment index fell sharply by -8.2 points to a record low of 50.2 (data since 1977). That was much weaker than expectations for a small -0.3 point decline. The plunge in consumer sentiment increases the risk of a sharp cut-back in consumer spending and a U.S. recession. Consumers are currently enjoying strong employment income, but are very worried about inflation, sky-high gasoline prices, and a possible recession.
Today’s stock movers…
DocuSign (DOCU) is down -21% after the company’s poor earnings news and subsequent analyst downgrades.
U.S.-listed Chinese stocks are seeing support today from hopes for a more favorable regulatory climate for Chinese tech stocks, but fell back as the overall U.S. stock market slid on the unfavorable CPI and consumer sentiment reports. Bloomberg reported earlier this week that China’s regulator is working to revive the IPO for Ant Group, although the regulator on Thursday denied that report. Alibaba Group Holding (BABA) is down -0.75%, but Baidu (BIDU) is up +0.37%, and Pinduoduo (PDD) is up +2.04%.
Rent the Runway (RENT) is up +13% on positive analyst comments after the company reported favorable results.
Netflix (NFLX) is down -4.43%, Roblox (RBLX) is down -6.59%, Ebay (EBAY) is down -4.26%, and Frontdoor (FTDR) is down -5.00% after Goldman Sachs cut its ratings on those stocks, partly due to Goldman’s outlook for a weaker economy.
Morgan Stanley downgraded IHeartMedia (IHRT) to underweight from equal-weight and downgraded Lamar Advertising (LAMR) to equal-weight due to reduced advertising spending forecasts for 2023. Iheartmedia is down more than -10%, and Lamar is down more than -5%.
Vonage (VG) is down -2.81% after Craig-Hallum Capital Group downgraded the stock to sell from hold due to lower odds that Ericsson will proceed with the deal to buy Vonage
Across the markets…
Sep 10-year T-notes (ZNU22) this morning are down -19 ticks, and the 10-year T-note yield rose +5.4 bp to a 1-month high of 3.096%. T-note prices were undercut by the stronger-than-expected U.S. CPI report and expectations for even more Fed tightening through mid-2023.
The dollar index (DXY00) this morning is up +0.87% at a 3-week high. The dollar is rallying on the strong U.S. CPI report, which improved the outlook for the dollar’s interest rate differentials. EUR/USD (^EURUSD) is sharply lower by -1.03% as the Fed is expected to raise interest rates much more quickly than the ECB. USD/JPY (^USDJPY) today is down -0.24%.
August gold (GCQ22) this morning is down -15.2 (-0.82%), and July silver (SIN22) is down by -0.267 (-1.22%). Precious metals today are trading lower due to expectations for the Fed to raise interest rates sharply over the next several quarters. Silver is also seeing downward pressure from concern about a possible U.S. recession next year, which would hurt demand for industrial metals.
