S&P 500, Dow Jones post fifth consecutive day of declines, Nasdaq ekes out thin gain

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Although they cut their initial losses, the Dow Jones and S&P 500 closed lower once again on Thursday. Another eye-popping inflation report played into the growing expectation that the Federal Reserve will become even more aggressive in its interest rate increases, raising the likelihood of an eventual recession.

With the retreat, the Dow and S&P 500 recorded their fifth consecutive day of declines. The Nasdaq bounced back from early losses to eke out a thin gain, breaking its three-day losing streak.

The Dow (DJI) ended -0.5%, the S&P (SP500) closed -0.3%, and the Nasdaq (COMP.IND) finished fractionally higher.

The Dow Jones dropped 142.62 points to finish at 30,630.17. The S&P 500 dipped 11.40 points, ending the session at 3,790.38. This was the index’s first close below 3,800 since the last day of June.

The Nasdaq showed losses for much of the session but ticked above the flat line at the close. The index ended at 11,251.19, higher by 3.60 points.

Seven of the 11 S&P sectors ended lower. Energy was among the weakest sectors after oil tumbled early in the day on concerns about a full-point Fed hike in July. However, crude reversed course in the middle of the day and basically came in flat, hovering around $96 a barrel.

Financial stocks were among the leaders to the downside as well. The slide followed the release of disappointing earnings from JPMorgan Chase and Morgan Stanley.

Looking at incoming interest rate chatter, Fed Governor Chris Waller supported a 75-basis-point hike and many argue that the Fed would have used its last couple of days before the pre-meeting blackout period to telegraph 100 basis points.

In the bond market, the 10-year Treasury yield climbed 5 basis points to 2.95%. The 2-year yield was down one basis point to 3.13%.

Trading took place amid another disheartening inflation report. The June Producer Price Index came in higher than expected at +1.1% M/M compared to the +0.8% estimate and +11.3% Y/Y vs. the +10.7% consensus.

“The headline PPI index was boosted by higher energy prices, especially gasoline, but this will exert substantial downward pressure in July,” Pantheon Macro said. “Food prices dipped slightly in June, for the first time since December, and further declines are promised by the drop in commodity food prices; wheat prices are back to their immediate pre-Ukraine invasion level.”

In other economic news that had much less impact on trading, jobless claims rose +9K to 244K vs. the 234K anticipated figure.

Yesterday’s retail inflation data prompted expectations for an even more hawkish FOMC at their meeting on July 27. The PPI added to this line of thinking.

“We believe the outright acceleration, for the second consecutive month, will likely encourage participants to now push for a 100bp hike,” Nomura said. “That may be particularly true considering one of the major drivers of the upside surprise in June was rent inflation, which remains a driver of overall trend inflation measures.”

Barclays predicts 75 basis points, with 100 being “unusually aggressive” – not seen since early 1989 – and the window for communicating it to markets closing fast. But risks to the upside “would intensify if Friday’s preliminary June Michigan Survey showed 5-10y inflation expectations jumped above the 2.8-3.2% range generally regarded as consistent with anchored inflation expectations.”