Stocks Slide on Recession Concerns

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.54%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.51%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.02%. 

U.S. stock indexes this morning are moderately lower.  Concern that the U.S. economy may have entered into recession is weighing on stocks today after today’s data showed that U.S. Q2 GDP unexpectedly contracted for a second quarter.  Stock indexes were already under pressure today on weaker-than-expected quarterly earnings results from Qualcomm and Meta Platforms that led technology companies lower. Qualcomm fell after forecasting a slowdown in revenue next quarter, and Meta Platforms dropped after reporting its first-ever quarterly sales decline. 

A supportive factor for the overall market today is a rally in renewable energy stocks after Senator Manchin and Senate Majority Leader Schumer, late Wednesday, struck a deal on a tax and energy bill that could provide $369 billion for "energy and climate change."   Also supporting stocks is today’s decline in the 10-year T-note yield to a 3-1/2 month low of 2.647%.

U.S Q2 GDP fell -0.9% (q/q annualized), weaker than expectations of a +0.4% increase.  The GDP decline in Q2 was the second consecutive quarter of contraction, which some consider to be a quick definition of a recession.  Recessions are officially designated well after the fact by the Nationa Bureau of Economic Research (NBER).  Q2 personal consumption rose +1.0%, weaker than expectations of +1.2%.

U.S. Q2 core PCE slowed to +4.4% q/q from +5.2% q/q in Q1, right on expectations.  The lower inflation figure was positive for the stock and bond markets.

U.S. weekly initial unemployment claims fell -5,000 to 256,000, showing a weaker labor market than expectations of 250,000.

Today’s stock movers…

Cincinnati Financial (CINF) is down more than -12% today to lead losers in the S&P 500 after reporting Q2 adjusted operating EPS of 65 cents, well below the consensus of $1.05. 

Stanley Black & Decker (SWK) is down more than -11% today after reporting Q2 net sales of $4.40 billion, weaker than the consensus of $4.77 billion. 

Southwest Airlines (LUV) is down more than -8% today after saying it expects inflationary pressures and headwinds from operating at suboptimal levels will continue in the second half of 2022.

Comcast (CMCSA) is down more than -9% today to lead losers in the Nasdaq 100 after reporting no new net customers in Q2, weaker than expectations of an +83,000 increase, and the first quarter that no new customers were added since 2005.

Qualcomm (QCOM) is down more than -5% today after forecasting Q4 revenue of $11.0 billion to $11.8 billion, below the consensus of $11.92 billion. 

Meta Platforms (META) is down more than -7% today after reporting Q2 revenue of $28.82 billion, weaker than the consensus of $28.93 billion, and forecast Q3 revenue of $26.0-$28.5 billion, below the consensus of $30.32 billion. 

Renewable energy stocks are surging today after Senator Manchin and Senate Majority Leader Schumer late Wednesday struck a deal on a tax and energy bill that could provide $369 billion for "energy and climate change."   Constellation Energy (CEG) is up more than +15% to lead gainers in the S&P 500 and Nasdaq 100.  Also, First Solar (FSLR) is up more than +14%, and SunPower (SPWR) is up more than +11%.  Enphase Energy (ENPH) is up more than +4%, and SolarEdge Technologies (SEDG) is up more than +3%.

Honeywell International (HON) is up more than +2% to lead gainers in the Dow Jones Industrials after reporting Q2 sales of $8.95 billion, better than the consensus of $8.66 billion.

Etsy (ETSY) is up more than +6% today after reporting Q2 revenue of $585.1 million, above the consensus of $558.0 million.

Across the markets…

Sep 10-year T-notes (ZNU22) this morning are up +21 ticks, and the 10-year T-note yield is down -10.9 bp at 2.676%.  Sep T-notes this morning rallied to a 3-1/2 month high, and the 10-year T-note yield dropped to a 3-1/2 month low of 2.647%.  Weaker-than-expected U.S. economic data today on weekly jobless claims and Q2 GDP are fueling gains in T-notes.  A rally in 10-year German bund prices to a 3-month high today is also providing carry-over support to T-note prices.

The dollar index (DXY00) this morning is up by +0.04%.  The dollar index this morning recovered from a 3-week low and is slightly higher.  Weakness in the euro is giving the dollar a boost today, although gains are muted due to strength in the yen as USD/JPY dropped to a 1-month low.  Also, weaker-than-expected U.S. economic data today on weekly jobless claims and Q2 GDP has pushed T-note yields lower and is weighing on the dollar.

EUR/USD (^EURUSD) is down by -0.70% today.  Bearish Eurozone economic data today is pressuring EUR/USD after Eurozone July economic confidence fell more than expected to a 17-month low and the German July CPI rose more than expected.  A slump in European government bond yields also weighs on the euro as the 10-year German bund yield fell to a 3-month low of 0.813% today. 

Eurozone July economic confidence fell -3.5 to a 17-month low of 99.0, weaker than expectations of 102.0.

German July CPI (EU harmonized) rose +8.5% y/y, stronger than expectations of +8.1% y/y.

USD/JPY (^USDJPY) today is down -1.44%.  USD/JPY tumbled today to a 1-month low.  A slump in the 10-year T-note yield today to a 3-1/2 month low has sparked short-covering in the yen.  The yen also rose today on comments from BOJ Deputy Governor Amamiya, who said he sees wage gains in Japan getting stronger, which bolstered speculation the BOJ might be closer to exiting QE.

August gold (GCQ22) this morning is up +26.3 (+1.53%), and September silver (SIU22) is up +1.020 (+5.48%.)  Precious metals this morning are sharply higher and posted 3-week highs.  Metals are climbing today after Wednesday afternoon’s comments from Fed Chair Powell bolstered speculation the Fed will slow the pace of interest rate increases.  Metals raced to their highs this morning on weaker than expected U.S. economic data, which is dovish for Fed policy.  Lower global bond yields today are also bullish for gold prices.

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