Stocks Indices See Little Change in Monday’s Trading Session
Last Updated 4:20PM EST
Stock indices finished Monday’s trading relatively flat, near session lows. After a promising start to the day, stocks were dragged down by Nvidia’s preliminary financial results, as the company cut its revenue guidance. As a result, the S&P 500 and the Nasdaq 100 decreased by 0.12%, and 0.37%, respectively. Meanwhile, the Dow Jones Industrial Average gained 0.09%.
The technology sector was the session’s laggard, as it fell by 0.88%. Conversely, the real estate sector (XLRE) was the session’s leader, with a gain of 0.75%. In addition, WTI crude oil gained 2.2%, reaching $90.50 per barrel.
Furthermore, the U.S. 10-Year Treasury yield decreased to 2.75%, a decline of more than eight basis points. Similarly, the Two-Year Treasury yield also decreased, as it hovers around 3.2%. This brings the spread between them to -45 basis points. The negative spread indicates that investors still have fears of a recession.
Compared to Friday, the market is pricing in a higher chance of a lower Fed Funds rate for the end of the year, likely due to lower inflation expectations from consumers. In fact, the market’s expectations for a rate in the range of 3.75% to 4% decreased to 19.8%, compared to last Friday’s expectations of 22.7%.
In addition, the market is now also assigning a 28.5% probability to a range of 3.25% to 3.5%. For reference, investors had assigned a 26.1% chance on Friday.
Although markets have been rallying over the past few weeks, it’s important for investors not to get too complacent. As Nvidia demonstrated today, anything can still happen to send stocks tumbling.
Real Estate Sentiment Falls in July
Last Updated 3:15PM EST
Stocks are in the red heading into the final 45 minutes of today’s trading session. As of 3:15 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.1%, 0.3%, and 0.6%, respectively.
On Monday, Fannie Mae released a survey that measures consumer confidence in the housing market. The market is rife with negative sentiment as only 17% of buyers thought July was a good time to buy a house. Conversely, 67% of sellers thought July was a good time to sell a home. Both measures were down from June’s reading when 20% of buyers and 76% of sellers had a positive view.
Interestingly, the number of people who believe that housing prices will fall going forward increased to 30%, up from 27%.
The continuing decline in sentiment can be attributed mainly to higher interest rates, which increase the cost of borrowing. This makes it more difficult for consumers to afford mortgage payments. As a result, more buyers are priced out of the market, thereby reducing the ability to support prices.
In addition, falling stock market prices are also impacting demand for higher-end homes. This is likely due to a reduction in the ‘wealth effect’ where consumers don’t feel as rich as they did in 2021. As a result, the pool of potential buyers has become more price conscious.
Consumer Expectations of Inflation Decreased in July
Last Updated 12:15PM EST
Equity markets are negative halfway into the trading session. As of 12:15 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.04%, 0.2%, and 0.4%, respectively.
The technology sector (XLK) is the laggard so far, as it is up 1.2%. Conversely, the consumer discretionary sector (XLY) is the session’s leader, with a gain of 1%.
WTI crude oil is currently hovering around $90.50 per barrel, as it trades not too far away from its session high of $90.61 per barrel. The price has pulled back considerably from last week’s high of $98.63 per barrel.
On Monday, the New York Federal Reserve released its monthly survey that measures the inflation expectations of consumers. Inflation expectations fell month-over-month, a positive sign for the central bank. In July’s survey, consumers expect inflation to be 6.2% and 3.2% over the next year and the next three years, respectively. For reference, the expectations were 6.8% for the year and 3.6% for the following three years in June.
Undoubtedly, the Federal Reserve welcomes this news, as Jerome Powell has stressed throughout the past year that it’s crucial to prevent inflation expectations from becoming too high. However, it’s important for investors not to become overly optimistic and start believing that this is enough to make the central bank pivot on its rate hikes.
Indeed, many members of the Federal Reserve have recently stated that inflation is still nowhere near the level it should be and that more rate hikes are on the way.
Stocks are in the Green to Start Monday’s Trading Session
Last Updated 10:00AM EST
Stock indices are in the green 30 minutes into today’s trading session. As of 10:00 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 0.9%, 1%, and 1.3%, respectively.
The healthcare sector (XLV) is the laggard so far, as it is up only 0.3%. Conversely, the communications sector (XLC) is the session’s leader, with a gain of 2.4%.
WTI crude oil remains below $90 per barrel as demand for gasoline remains lower than pre-pandemic levels, which is the result of higher prices at the pump. In addition, investors are worried that an economic slowdown will negatively impact the demand for fuel. As a result, the price is hovering around the low-$89 per barrel range, up roughly 0.8% from the previous close.
Meanwhile, bond yields are lower, as the U.S. 10-Year Treasury yield is now hovering around 2.77%. This represents a decrease of more than six basis points from the previous close.
Similar movements can be seen with the Two-Year yield, which is now at 3.21%. However, the spread between the 10-Year and Two-Year U.S. Treasury yields is still negative, sitting at -44 basis points.
Pre-Market Update
Stock futures trended higher during the pre-market trading session early on Monday, after the release of upbeat labor market data.
Futures on the Dow Jones Industrial Average (DJIA) gained 0.27%, while those on the S&P 500 (SPX) inched 0.31% lower, as of 6.22 a.m. EST, Monday. Meanwhile, the Nasdaq 100 (NDX) futures retracted by 0.43%.
The optimism followed a strong week for the S&P 500 and the Nasdaq Composite. However, performance on Friday was mixed, with the S&P 500 and the Nasdaq 100 closing 0.16% and 0.78% lower, respectively.
Upbeat Economic Data & Its Implications
The July jobs report by the Labor Department revealed some glittering numbers. The U.S. jobs market expanded by 528,000 new openings last month, up 42% from June’s reading and a far cry from the consensus estimate (per a survey by Dow Jones) of 258,000 new jobs.
This remarkable strength displayed by the labor market amid mounting inflationary pressures and borrowing costs blew off some of the recently heightened recession fears. Investors seem to be taking a break from the nail-biting, encouraged by the unwavering resilience of the labor market.
However, on the flip side, this might mean a more aggressive approach by the Federal Reserve to curb inflation.
The Federal Reserve has relied on the resilience of the labor market to choose the direction of its monetary tightening campaign. The labor market has so far held up well in the face of these macro concerns, and the July report indicates that the economy can withstand more interest rate hikes.
Investors are also looking forward to the consumer price index (CPI) data for July on Wednesday, which will make the inflation picture clearer. According to Dow Jones, the headline CPI (including energy and food prices), is expected to have cooled to 8.7% in July, coming off the 40-year high of 9.1% recorded in June.
However, the concerns are far from over, taking into account the slowing economic growth. With the majority of companies facing price target slashes and trimmed outlooks, the economy is expected to remain volatile for some time now.
