Stocks Plunge on Recession Fears

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down by -3.05%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -2.38%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -3.59%. 

Stocks are sharply lower today, with the S&P 500 falling to a 17-month low, the Dow Jones Industrials dropping to a 16-month low, and the Nasdaq 100 falling to a 19-month low.  Recession fears are roiling U.S. and European equity markets today on concern global central banks will need to keep raising interest rates to rein in inflation. Stock indexes maintained sharp losses on this morning’s weaker-than-expected U.S. economic data.

Renewed concerns about the impact of monetary tightening on economic output and asset valuations have sparked a selloff today in U.S. and European stocks.  Also, European government bond yields soared today after the Swiss central bank unexpectedly raised its policy rate by 50 bp to -0.25%, its first increase since 2007, and after the Bank of England (BOE) raised its benchmark rate by 25 bp for the fifth consecutive meeting.  The 10-year German bund yield today jumped to a new 8-year high of 1.928%, and the 10-year UK gilt yield climbed to a 7-3/4 year high of 2.742%. 

U.S. weekly initial unemployment claims fell -3,000 to 229,000, showing a weaker labor market than expectations of a decline to 217,000.

The U.S. Jun Philadelphia Fed business outlook survey unexpectedly fell -5.9 to a 2-year low of -3.3, weaker than expectations of an increase to 5.0.

U.S. May housing starts fell -14.4% m/m to a 13-month low of 1.549 million, weaker than expectations of 1.693 million.  U.S. May building permits, a proxy for future construction, fell -7.0% m/m to an 8-month low of 1.695 million, weaker than expectations of 1.778 million.

Today’s stock movers…

Rising T-note yields today are undercutting technology stocks.  Qualcomm (QCOM), Marvell Technology (MRVL), Micron Technology (MU), and Atlassian Corp Plc (TEAM) are down more than -6%.  Also, Nvidia (NVDA), Okta (OKTA), Advanced Micro Devices (AMD), Microchip Technology (MCHP), and Analog Devices (ADI) are down more than +5%. 

Electric vehicle makers are sliding today after Jeffries cut its global EV sales estimates for this year and next.  Nikola (NKLA) is down more than -7%, and Tesla (TSLA), Rivian Automotive (RIVN), and Lucid Group (LCID) are down more than -6%.

Bank stocks are being weighed down today from recession fears.  Capital One Financial (COF) is down more than -7%.  Also, Discover Financial Services (DFS) and Signature Bank/New York (SBNY) are down more than -6%.  In addition, American Express (AXP) is down more than -5% to lead losers in the Dow Jones Industrials.   

Etsy (ETSY) is down more than -9% today to lead losers in the S&P 500 after Oppenheimer cut its price target on the stock to $120 from $140, citing slowing online sales in May.

Kroger (KR) is down more than -2% today after reporting a Q1 gross margin of 21.6%, lower than the consensus of 22% due to higher costs. 

Recession fears are hammering cruise line operators today.  Carnival (CCL) and Norwegian Cruise Line Holdings (NCLH) are down more than -7%, and Royal Caribbean Cruises (RCL) is down more than -6%.

Across the markets…

Sep 10-year T-notes (ZNU22) this morning are down -11 ticks, and the 10-year T-note yield is up +13.4 bp at 3.420%.  A jump in European government bond yields today is weighing on T-note prices.  The 10-year German bund yield climbed to an 8-year high today of 1.928% after the SNB unexpectedly raised its policy rate by 50 bp to -0.25%.  Also, the 10-year UK gilt yields rose to a 7-3/4 year high of 2.742% after the BOE raised its benchmark rate by 25 bp for the fifth consecutive meeting.  T-notes rebounded from their worst levels on this morning’s weaker than expected U.S. economic data on weekly jobless claims, May housing starts, and the June Philadelphia Fed business outlook survey. 

The dollar index (DXY00) this morning is down -0.60%.  The dollar is under pressure today from strength in EUR/USD and GBP/USD after the SNB and BOE both raised interest rates today.  Also, weaker-than-expected U.S. economic data today is bearish for the dollar. 

EUR/USD (^EURUSD) is up +0.14% today.  EUR/USD is moderately higher today on a jump in European government bond yields.  The 10-year German bud yield rose to a new 8-year high today, which strengthens the euro’s interest rate differentials.  Gains in EUR/USD were limited on weak economic data today that showed Eurozone May new car registrations fell -11.2% y/y, the eleventh consecutive month registrations have declined. 

The Bank of England (BOE) raised its benchmark lending rate by 25 bp to 1.25% as expected and said it would "act forcefully" on inflation if necessary.

The Swiss National Bank (SNB) unexpectedly raised its policy rate by 50 bp to -0.25%, its first increase in 15 years, and said "it cannot be ruled out that further increases in the SNB rate will be necessary in the foreseeable future to stabilize inflation."

USD/JPY (^USDJPY) today is down -0.78%.  USD/JPY today extended Wednesday’s losses down to a 1-week low. The yen is moving higher today on short-covering ahead of Friday’s BOJ meeting.  After today’s surprise action by the SNB to raise interest rates, there’s growing speculation the BOJ will join global peers and announce monetary tightening.  Today’s Japanese trade data was negative for the yen after Japan May exports rose +15.8% y/y, weaker than expectations of +16.1% y/y.

August gold (GCQ22) this morning is up +13.1 (+0.72%), and July silver (SIN22) is up +0.160 (+0.75%).  Precious metals today are moderately higher on a weaker dollar.  Also, a slump in the S&P 500 to a 16-month low today has sparked safe-haven demand for precious metals.  Gains in gold are limited due to higher global bond yields and the actions by the SNB and BOE today to raise interest rates.