Stocks started the Tuesday session to the upside, but quickly turned negative as traders processed a weak Consumer Confidence report from the Conference Board, which hit its lowest level since February 2021, early in the session. The indices slid throughout the day, finishing at session lows. When all was said and done, the S&P 500 was down 79 points; the NASDAQ was off 343 points; and the Dow Jones Industrial Average declined 491 points.
The futures markets bounced back a bit after the session, regaining a portion of the day’s losses, and were to the upside by midnight. This bounce did not last through the night, but the markets were nonetheless in the green by morning, suggesting a modest rally to start the trading day.
Meantime, market breadth was negative yesterday, as decliners outpaced advancers by a 2.2-to-1.0 ratio. Energy issues were among the strongest performers, aided by a price increase in the related commodities. All other sectors were in the red, with the consumer discretionary stocks posting the biggest percentage declines. They were dragged lower by a negative earnings report and outlook from NIKE (NKE), which was impacted by lockdowns in China and a pullback in consumer spending in the United States. The final revision to first-quarter GDP (from -1.5% to -1.6%) showed that the consumer is starting to cut spending, with the consumption growth slashed from 3.1% to 1.8%.
In commodity news, oil prices rose yesterday and are higher again this morning, continuing the trend of the past few days. Traders are worried that an undersupply of oil would be exacerbated by increased demand from China after it ended its lockdowns. Moreover, the United States will likely experience higher purchases due to the summer travel season. Elsewhere, U.S. Treasury bond yields were mixed, with short-term rates rising and long-term ones falling. This combination is usually a negative for financials’ earnings, which borrow short and lend long. The VIX Volatility index, which measures the magnitude of price movements in the S&P 500, rose yesterday, as demand for options protection increased.
Several economic reports will likely impact the market in the days ahead. This includes some inflation data on Thursday, with readings on core and noncore personal consumption expenditures for May. That data will likely be a key factor behind the Fed’s interest-rate policy decision at next month’s Federal Open Market Committee meeting. Additionally, reports on Thursday will show how consumer spending is holding up, and the Chicago PMI will give some insight into manufacturing sector. On Friday, the ISM Manufacturing Survey will be released. Meantime, the earnings docket will reach its trough in the days ahead, with very few businesses slated to report quarterly results ahead of the Independence Day holiday weekend. Overall, we think the inflationary data will have the biggest impact on the stock prices in the days ahead.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
