Stocks Decline as Weak U.S. Economic Data Bolsters Recession Risks

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down by -0.50%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.64%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.63%. 

Stock indexes this morning are moderately lower on economic concerns.  Recession fears are undercutting stocks today after data showed U.S. manufacturing activity in June expanded at its weakest pace in 2-years and U.S. May construction spending unexpectedly declined.  Also, semiconductor stocks are falling after Micron Technology issued a weak forecast for the current quarter due to lower demand for phones and computers.  In addition, mining stocks are metals producers are taking a hit today on industrial metals demand concerns, with the price of copper falling to a 17-month low and the price of silver tumbling to a 23-month low.

A supportive factor for equities today is the sharp decline in T-note yields as the 10-year T-note yield dropped to a 5-week low of 2.787%. The slide in yields benefits mortgage rates and is pushing homebuilding stocks higher today.

Data from EPFR Global show outflows in global stock and bond markets.  About $5.8 billion exited global stock funds in the week through June 29, and global bond markets had redemptions of $17 billion in the same period.  In addition, data from Bloomberg shows global companies have postponed or canceled 70 debt sales in the first half of this year, more than in all of 2020.

The U.S. Jun ISM manufacturing index fell -3.1 to 53.0, weaker than expectations of 54.5 and the slowest pace of expansion in 2 years.

U.S. May construction spending unexpectedly fell -0.1% m/m, weaker than expectations of +0.4% m/m and the first decline in 8 months.

Today’s stock movers…

Semiconductor stocks are falling today after Micron Technology issued a weak forecast for the current quarter due to lower demand for phones and computers.  Lam Research (LRCX) is down more than -7% to lead losers in the S&P 500 and Nasdaq 100.  Also, Micron Technology (MU) and Western Digital (WDC) are down more than -6%. In addition, Advanced Micro Devices (AMD), Qualcomm (QCOM), Applied Materials (AMAT), and ON Semiconductor Corp  (ON) are down more than -5%.  Finally, Intel (INTC) is down more than -3% to lead losers in the Dow Jones Industrials. 

Homebuilding stocks are climbing today as a drop in the 10-year T-note yield to a 1-month lowers mortgage rates and may boost housing demand.  Lennar (LEN), DR Horton (DHI), Toll Brothers (TOL), and PulteGroup (PHM) are up more than +4% 

Etsy (ETSY) is up more than +6% today to lead gainers in the S&P 500 after Raymond James initiated coverage of the stock with a recommendation of outperform. 

Across the markets…

Sep 10-year T-notes (ZNU22) this morning are up +1-15/32 points, and the 10-year T-note yield is down -17.3 bp at 2.840%.  Sep T-notes rallied to a 1-month high today, and the 10-year T-note yield dropped to a 5-week low of 2.787%.  Weaker-than-expected U.S. economic data today has fueled recession concerns and sparked a rally in T-notes.  Also, weakness in stocks is boosting the safe-haven demand for T-notes. 

The dollar index (DXY00) this morning is up +0.71%.  The dollar this morning is moderately higher and posted a 2-week high.  Weakness in stocks today has sparked liquidity demand for the dollar.  The upside in the dollar is limited after the 10-year T-note yield today fell to a 5-week low.

EUR/USD (^EURUSD) is down -0.73% today.  EUR/USD today is moderately lower and is just above Thursday’s 2-week low.   Record high inflation in the Eurozone is weighing on EUR/USD today after Eurozone Jun CPI rose more than expected at a record pace. Also, dollar strength today is weighing on the euro. 

Eurozone Jun CPI rose a record +8.6% y/y (data from 2001), stronger than expectations of +8.5% y/y. Eurozone Jun core CPI unexpectedly eased to +3.7% y/y, a slower pace of increase than expectations of +3.9% y/y.

USD/JPY (^USDJPY) today is down -0.26%.  USD/JPY today is moderately lower as a fall in T-note yields today strengthens the yen.  Also, weakness in stocks today has boosted the safe-haven demand for the yen.  However, the upside in the yen is limited by today’s weaker-than-expected Japanese economic data on Jun vehicle sales and the Q2 Tankan index of large manufacturer sentiment.

Japan Jun vehicle sales fell -15.8% y/y, the tenth consecutive month that auto sales have declined.

The Japan Q2 Tankan index of large manufacturer sentiment fell by -5 to 9, weaker than expectations of 13.

August gold (GCQ22) this morning is down -14.2 (-0.79%), and September silver (SIU22) is down -0.847 (-4.16%).  Precious metals today are mixed, with gold dropping to a 5-month low and silver falling to a 23-month low.  A stronger dollar today is weighing on metals prices.  Also, weaker than expected U.S. manufacturing activity signals reduced industrial metals demand that is bearish for silver prices after the U.S. Jun ISM manufacturing index fell more than expected to a 2-year low.  Losses in gold are limited as global bond yields fall.

• Stock Indexes Slide as Chip Stocks Retreat on a Weak Outlook from Micron
• 3 Calendar Spread Trade Ideas For This Friday
• Stocks Close Moderately Lower on Economic Growth Concerns
• Why You Should Consider The Second-Worst Performing Stock in the S&P 500