Stocks Tumble on Recession and Stagflation Fears

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down by -1.86%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.61%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -2.44%. 

Stock indexes this morning are slumping, with the S&P 500 and Dow Jones Industrials falling to 1-week lows and the Nasdaq 100 dropping to a 1-1/2 week low. Recession fears are hammering stocks today after U.S. economic data showed a slowdown in consumer spending. Also, concern that price pressures will be slow to recede has raised fears of stagflation gripping the economy.

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 added to their losses today after the June MNI Chicago PMI fell more than expected to a 1-3/4 year low.

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 U.S. Jun MNI Chicago PMI fell -4.3 to a 1-3/4 year low of 56.0, weaker than expectations of 58.0.

Today’s stock movers…

Mega-cap technology stocks are tumbling today as recession fears hammer high-valuation tech stocks.  Amazon.com (AMZN) is down more than -5%.  Also, Alphabet (GOOGL) is down more than -4%, and Apple (AAPL), Nvidia (NVDA), and Marvell Technology (MRVL) are down more than -3%.

Cruise line operators today are falling sharply for a second day on negative carry-over from Wednesday when Morgan Stanley warned that Carnival could lose all of its value in the event of another demand shock.  Norwegian Cruise Line Holdings (NCLH) is down more than -8%, leading losers in the S&P 500.  Also, Royal Caribbean Cruises (RCL) and Carnival (CCL) are down more than -6%.

Hospital stocks are falling today, with United Health Services (UHS) down more than -7% 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. Also, Tenet Healthcare (THC) is down more than -7%, and HCA Healthcare (HCA) and Community Health Systems (CYH) are down more than -4%.

Bank stocks are falling today and pressuring the overall market.  Signature Bank of New York (SBNY) is down more than -5%.  Also, State Street (STT) and Morgan Stanley (MS) are down -4%.  In addition,  Fifth Third Bancorp (FITB), Comerica (CMA), JPMorgan Chase (JPM), and Goldman Sachs (GS) are down more than -3%. 

Across the markets…

Sep 10-year T-notes (ZNU22) this morning are up +18 ticks, and the 10-year T-note yield is down -7.1 bp at 3.018%.  Sep T-notes matched a 3-week high today.  U.S economic data today that showed a smaller-than-expected increase in May personal spending and a slower-than-expected increase in the May core PCE deflator is boosting T-note prices.  Today’s quarter and month-end will likely keep T-note prices firm the rest of the day as bond fund managers rebalance their bond portfolios. 

The dollar index (DXY00) this morning is up +0.03%.  The dollar this morning climbed to a 2-week high.  A slump in stocks today has boosted liquidity demand for the dollar.  The dollar fell back from its best levels today on weaker-than-expected U.S. May personal spending data along with a decline in T-note yields. 

EUR/USD (^EURUSD) is down -0.27% today.  EUR/USD dropped to a 2-week low today on dollar strength and the prospects for the ECB to purchase European government bonds.  Reuters reported today that the ECB would purchase Italian, Spanish, Portuguese, and Greek bonds with the profits it gets from maturing German, French, and Dutch debt bought under the Pandemic Emergency Purchase Program (PEPP) in an effort to cap spreads in borrowing costs.  Losses in EUR/USD were contained on today’s stronger-than-expected Eurozone economic data.

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.

USD/JPY (^USDJPY) today is down -0.48%.  USD/JPY today is moving lower as a decline in T-note yields is bullish for the yen.  Also, a slump in stock prices today has boosted the safe-haven demand for the yen.  The yen also gained today after the BOJ announced no increases in bond purchases for the July-September period.  Today’s weaker than expected Japan May industrial production data was bearish for the yen. 

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

August gold (GCQ22) this morning is up +2.0 (+0.11%), and July silver (SIN22) is down -0.253 (-1.22%).  Precious metals today are mixed, with silver falling to a 23-month low.  A rally in the dollar index to a 2-week high today is undercutting metals prices.  Silver prices are also under pressure on industrial metals demand concerns after the U.S. Jun MNI Chicago PMI and Japan May industrial production were weaker than expected.  Gold is trading slightly higher today on lower global bond yields.

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