Stock Indexes Fall on Recession Fears

Morning Markets

September S&P 500 futures (ESU22) this morning are down by -1.01%.  Stock indexes are weaker this morning on concerns that central bank tightening will slow economic growth while price pressures will be slow to recede.  Comments from the global central bankers meeting at an annual forum hosted by the ECB Wednesday warned that inflation will last longer than expected, with ECB President Lagarde saying, "I don't think we are going back to that environment of low inflation."  U.S. stock indexes recovered from their worst levels this morning after data showed U.S. price pressures eased as the May core PCE deflator rose less than expected.

U.S. weekly initial unemployment claims fell -2,000 to 231,000, close to expectations of 230,000.

U.S. May personal spending rose +0.2% m/m, weaker than expectations of +0.4% m/m.  May personal income rose +0.5% m/m, right on expectations.

The U.S. May PCE core deflator rose +0.3% m/m and +4.7% y/y, a slower pace of increase than expectations of +0.4% m/m and +4.8% y/y.

The Euro Stoxx 50 today is down sharply by -2.50%.  European stocks are under pressure today on the prospects for economic growth to slow and for inflation to remain stubbornly high.  Automakers and consumer products showed the biggest declines.  Uniper SE sank to a 5-year low today after the German utility withdrew its outlook and said it was discussing a possible bailout from the German government following Russia’s move to curb natural gas deliveries.   Also, SAP SE tumbled more than -6% after Exane BNP Paribas downgraded the stock to neutral, citing risks to demand.  European stocks fell sharply today despite better-than-expected economic data on Eurozone unemployment and German retail sales.

The Eurozone May unemployment rate unexpectedly fell -0.1 to a record low 6.6%, showing a stronger labor market than expectations of 6.8%.

German May retail sales rose +0.6% m/m, stronger than expectations of +0.5% m/m.

The German May import price index eased to +30.6% y/y, a slower pace of increase than expectations of +31.5% y/y.

Asian markets today settled mixed.  China’s Shanghai Composite Index closed up by +1.10%, and Japan’s Nikkei stock index closed down by -1.54%. 

China’s Shanghai Composite today posted a new 3-1/2 month high and closed moderately higher.  A gradual easing of pandemic restrictions in China is boosting economic activity and is positive for stocks.  Hotel operators, airlines, and other travel-related stocks all rallied today as China’s economy reopened from lockdowns.  Stocks also garnered support today after data showed China June manufacturing and June non-manufacturing PMIs both moved up into expansion territory. 

The China Jun manufacturing PMI rose +0.6 to 50.2, weaker than expectations of 50.5.  The China Jun non-manufacturing PMI rose +6.9 to 54.7, stronger than expectations of 50.5 and the fastest pace of expansion in 13 months.

Japanese stocks fell today as the impact of China’s Covid lockdowns in May undercut factory output in Japan. Today’s economic data showed Japan May industrial production fell -7.2% m/m, the biggest decline in 2 years.  Manufacturers are continuing to struggle to get products and parts built due to supply chain turmoil.  Toyota Motor, Japan’s largest automaker, announced earlier this month that it is suspending some of its auto production in Japan in June and July as parts shortages related to the pandemic drag on. 

Japan May industrial production fell -7.2% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 2 years.

Pre-Market U.S. Stock Movers

Mega-cap technology stocks are falling in pre-market trading on concern the global economy will slow as central banks tighten monetary policy.  Apple (AAPL), Alphabet (GOOGL), Amazon.com (AMZN), and Microsoft (MSFT) are all down more than -1%. 

Cryptocurrency-related stocks are tumbling in pre-market trading, with the price of Bitcoin down more than -5% at a 1-1/2 week low.  Coinbase Global (COIN) is down nearly -5%, and Riot Blockchain (RIOT), Marathon Digital (MARA), and Hut 8 Mining (HUT) are all down more than -3%.

United Health Group (UNH) dropped more than -7% in pre-market trading after cutting its full-year adjusted EPS forecast to $9.60 to $10.40 from an earlier estimate of $11.90 to $12.90, well below the consensus of $12.00. 

Walgreens Boots Alliance (WBA) fell more than -3% in pre-market trading even after reporting Q3 sales of $32.6 billion, above the consensus of $32.0 billion. 

RH (RH) dropped nearly -5% in pre-market trading after it cut its 2023 full-year revenue forecast to down -2% to -5% from an earlier projection of 0% to +2%. 

Duck Creek Technologies (DCT) plunged -19% in pre-market trading after cutting its full-year revenue forecast to $295 million to $297 million from an earlier forecast of $301 million to $305 million, below the consensus of $304.7 million. 

Constellation Brands (STZ) rose +0.5% in pre-market trading after reporting Q1 comparable EPS of $2.60, stronger than the consensus of $2.50.

Aspen Aerogels (ASPN) surged more than +50% in pre-market trading after it said it won’t proceed with concurrent public offerings of common stock and green convertible senior notes due 2027 due to current market conditions. 

Today’s U.S. Earnings Reports (6/30/2022)

Acuity Brands Inc (AYI), Constellation Brands Inc (STZ), Micron Technology Inc (MU), Walgreens Boots Alliance Inc (WBA).

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