The Market Knows Not What it Wants (June 17 Market Recap)

June 18, 2022

The Market Knows Not What it Wants (June 17 Market Recap)

The Market Knows Not What it Wants

Indices

Dow 29,888 (1504) or (4.8%)

Nasdaq 10,798 (542) or (4.8%)

S&P 3,674 (226) or (5.8%)

USD10Y 3.239% +8.3bp or +2.6%

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The Fed, the Fed and Nothing but the Fed

The only story this week was the Fed and their not so surprising 75 basis points (bp) rate hike, the largest such hike since 1994. The markets sold off early in the week as rumors circulated that the Fed would raise rates by 75 bp due to the previous Friday’s hot Consumer Price Index (CPI) report. When that came to pass on Wednesday, the markets seemed to approve of the tough medicine being prescribed by the central bank and rallied, only to reconsider and sell off strongly on Thursday and Friday as fears of a recession weighed on all asset classes, even previously untouchable crude oil prices (West Texas Intermediary, WTI). WTI dipped to its lowest level since May 12.

Economic Data Still Slowing

All the economic data is still slowing and thus giving credence to recession fears. This week’s tally…

Jobless claims printed at 229,000 claims vs April 7th’s record low 166,000 claims.
May Retail sales missed expectations.
June Empire State Manufacturing was negative again.
June Philadelphia Federal Manufacturing Index was negative.
May Leading Economic Indicators was negative for the second consecutive month.

Next Week

Markets are closed on Monday in observance of Juneteenth. The balance of the week is light on economic data points. May Existing and New Home Sales figures are released on Tuesday and Thursday respectively with both numbers expected to decline substantially month over month (down 3.5% and 1.0% respectively). Thursday will be busy with Initial Jobless Claims as usual, the first glance at June U.S. Manufacturing and Services PMI, as well as final June University of Michigan Consumer Sentiment. Several Fed Presidents are scheduled to speak during the week and Fed Chair Jerome Powell with testify in front of Senate and House committees.

Economic Calendar

Monday – Markets are closed in observance of Juneteenth.
Tuesday – May Existing Home Sales.
Wednesday – N/A
Thursday – Initial Jobless Claims, June S&P Global U.S. Manufacturing PMI (flash), June S&P Global U.S. Services PMI (flash), June University of Michigan Consumer Sentiment (final).
Friday – May New Home Sales.

June 17 Daily Trading Recap…

Monday – Dow (876) to 30,516, Nasdaq (530) to 10,890, S&P (151) to 3,749, USD10Y +21bp to 3.366%.

All eleven S&P sectors traded down today, led lower by Energy, Real Estate, and Consumer Discretionary.
Markets fell on the hangover from Friday’s CPI report as well as new fears that the Fed will now increase rates by 75 bp instead of 50 bp this week and/or during the next meeting in late July.
The yield on the benchmark 10-year Treasury spiked 21 bp on the same fears that the Fed may now raise 75 bp instead of 50.

Tuesday – Dow (151) to 30,364, Nasdaq +19 to 10,828, S&P (14) to 3,735, USD10Y +11.7bp to 3.483%.

Wednesday – Dow +303 to 30,668, Nasdaq +270 to 11,099, S&P +54 to 3,789, USD10Y (8.8bp) to 3.395%.

The Federal Reserve boosted interest rates by 75bp today, the largest rate hike since 1994. In his comments Fed Chair Powell said that July’s increase would be either 50 or 75bp depending on the data. The Fed also decreased its growth forecast for the economy to 1.7% GDP vs 2.8% previously.
Ten of eleven S&P sectors traded higher today led by Consumer Discretionary, Communication Services, and Real Estate.
July WTI Crude traded down 2.6% to settle at $115.83/bbl on news that the Senate Finance Committee Chair, Ron Wydon (D-OR) is going to introduce a windfall profits tax on oil and gas companies.
May Retail sales missed expectations at -0.3% vs +0.1% expected and vs last month’s +0.7% increase.
June Empire State Manufacturing was negative again at –1.2% although it was a substantial improvement over May’s -11.6 number.

Thursday – Dow (741) to 29,927, Nasdaq (453) to 10,646, S&P (123) to 3,666, USD10Y (8.8bp) to 3.307%

All eleven S&P sectors traded down today led lower by Communication Services, Technology, and Financials.
Jobless claims printed at 229,000 claims vs 220,000 expected and last week’s slightly revised higher 232,000 print (originally 229k). Continuing claims remained unchanged at just under 1.31 million.
May Building Permits and Housing Starts were both down substantially vs their previous month’s numbers: 1.7 million vs April’s 1.82 million and 1.55 million vs April’s 1.81 million respectively.
June Philadelphia Federal Manufacturing Index was negative at –3.3 vs expectations of +4.8 and last month’s +2.6.

Friday – Dow (38) to 29,888, Nasdaq +152 to 10,798, S&P +8 to 3,674, USD10Y (6.8bp) to 3.239%

Six of eleven S&P sectors traded higher led lower by Communication Services, Consumer Discretionary, and Technology.
July WTI Crude tumbled to $110.48/bbl, its lowest level since May 12, on concerns that rising interest rates will cut growth and thus demand for the commodity.
May Leading Economic Indicators posted a –0.4% number, the same as last month.

Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ETHE, GBTC, and TSLA.