Stocks Finish Wednesday’s Session in Negative Territory
Last Updated 4:15 PM EST
Stock indices finished today’s trading session in the red. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 decreased 0.5%, 0.72%, and 1.21%, respectively.
The communications sector was the session’s laggard, as it fell by 1.95%. Conversely, the energy sector was the session’s leader, with a gain of 0.82%. In addition, WTI crude oil gained 0.8%, reaching $87.80 per barrel, well off the session low of $85.90 per barrel.
Furthermore, the U.S. 10-Year Treasury yield increased to 2.89%, gaining 8.4 basis points. Similarly, the Two-Year Treasury yield also increased, hovering around 3.28%. This brings the spread between them to -39 basis points. The negative spread indicates that investors still have fears of a recession.
The Federal Reserve meeting minutes were released today, which showed that the central bank wasn’t done raising interest rates. It wants to make sure that inflation is well on its way to 2% before it becomes more dovish. Nevertheless, there was some talk about slowing the speed of rate hikes, but that wasn’t enough for investors to get excited about.
As a result, compared to yesterday, the market is pricing in a higher chance of a higher Fed Funds rate for the end of the year. In fact, the market’s expectations for a rate in the range of 3.5% to 3.75% increased to 46.7%, which is up from yesterday’s expectations of 44.6%. In addition, the market is now also assigning a 32.2% probability to a range of 3.25% to 3.5%. For reference, investors had assigned a 33% chance yesterday.
Mortgage Applications Decreased from the Previous Week
Last Updated 3:00PM EST
Stocks are in the red heading into the final hour of today’s trading session. As of 3:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.2%, 0.4%, and 0.7%, respectively.
The communications sector (XLC) is the laggard so far, as it is down 1.3%, while the best performing sector, energy, is up 0.8%.
WTI crude oil remains under $90 per barrel, hovering around the mid-$87 per barrel range. Meanwhile, the U.S. 10-Year Treasury yield is hovering around 2.89%, which is up more than eight basis points compared to yesterday’s close. The spread between the 10-Year and Two-Year U.S. Treasury yields remains negative, as it currently sits at -40 basis points.
On Wednesday, the Mortgage Bankers Association released its weekly report for the U.S. 30-Year mortgage rate. The mortgage rate decreased to 5.45% compared to last week’s reading of 5.47%.
Despite the lower rates, the number of mortgage applications decreased week-over-week by -2.3%, following last week’s increase of 0.2%. This indicates that homebuyers are not in a hurry to buy new properties.
In addition, mortgage application volume is down substantially on a year-over-year basis, with the Mortgage Market Index at 273.3 compared to 725.4 on August 18, 2021.
Core Retail Sales Growth Comes in Better than Expected
Last Updated 12:15PM EST
Equity markets are in the red halfway into today’s trading session. As of 12:15 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.8%, 1%, and 1.6%, respectively.
On Friday, the Census Bureau released its month-over-month U.S. Retail Sales report, which measures the change in the total value of retail sales. In July, retail sales remained flat at 0%, below the expected increase of 0.1%.
However, this was primarily because consumers were paying less at the pumps as a result of falling energy prices. Nevertheless, consumers remain in good shape as many are receiving wage increases and household finances remain strong.
Indeed, Core Retail Sales, which excludes automobiles, increased 0.4% month-over-month, which is above the -0.1% that was forecast. In addition, when also excluding gasoline, core retail spending grew by 0.7% in July, flat when compared to the 0.7% increase in June.
This highlights how consumers are still willing to spend, and they are simply reallocating the money saved from gasoline to purchase discretionary items.
However, it’s important for investors to remember that although strong core retail sales are a sign of strength, it can also be a double-edged sword if inflation remains high, going forward. A strong consumer, coupled with high inflation, will only give the Federal Reserve more reasons to continue increasing interest rates.
As a result, investors shouldn’t be too quick to cheer about today’s result.
Stocks are in the Red to Start Wednesday’s Trading Session
Last Updated 10:00AM EST
Stock indices are in the red 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 down 0.5%, 0.6%, and 0.9%, respectively.
The materials sector (XLB) is the laggard so far, as it is down 1.2%. Conversely, the energy sector (XLE) is the session’s leader, with a loss of 0.01%.
WTI crude oil remains below $90 per barrel as investors worry about a potential recession. In addition, there are talks of reviving a nuclear deal with Iran, which would allow it to increase its oil exports. As a result, the price is hovering around the high-$86 per barrel range.
Meanwhile, bond yields are higher, as the U.S. 10-Year Treasury yield is now hovering around 2.89%. This represents an increase of more than eight basis points from the previous close.
Similar movements can be seen with the Two-Year yield, which is now at 3.35%. However, the spread between the 10-Year and Two-Year U.S. Treasury yields is still negative, as it currently sits at -46 basis points.
Pre-Market Update
U.S. stock market futures dipped early Wednesday morning as investors await more retail earnings announcements after solid quarterly results from retail giants Walmart (WMT) and Home Depot (HD).
Futures on the Dow Jones Industrial Average (DJIA) inched 0.25% lower, while those on the S&P 500 (SPX) lost 0.38%, as of 5.15 a.m. EST, Wednesday. Meanwhile, the Nasdaq 100 (NDX) futures dipped 0.50%.
At the end of the regular trading, the Dow gained 0.71% and the S&P advanced 0.19%. The Nasdaq 100, however, lost 0.23%. Interestingly, the S&P 500 is up about 18% from its lowest traded points in June.
Strong quarterly numbers from Walmart and Home Depot also lifted the prices of other retailers like Target (TGT) and Lowe’s (LOW), both of which are set to report earnings later on Wednesday. The upbeat results from two of the biggest retailers reflected solid resilience of consumers to market conditions, and thus lifted the sentiments of investors.
Will the U.S. Stock Market Fall Further?
However many reasons there are to cheer, many experts are suggesting that the market volatility is expected to continue, given a lot of undercurrents that have not broken the surface yet.
Minutes from the Fed’s July meeting are set to be released later on Wednesday, giving us an idea about its direction for the upcoming rate hike round in September, but nothing beyond that. It might still be too early to draw a clear picture of the inflation situation a few months from now and how the Federal Reserve will step in to manage that.
Meanwhile, the U.S. housing market appears to be in a recession. As high costs, prices, and high mortgage rates have made homes unattainable, new construction slowed down significantly in July. The Commerce Department said on Tuesday that new home construction in July was down 9.6% from June. Moreover, building permits also fell 1.3% month-over-month in July.
The U.S. manufacturing sector also slowed in July, rising more concerns that the economy might not be able to skirt a recession after all.
On Tuesday, bond yields moved up on the back of the housing and manufacturing data from July. The benchmark 10-year Treasury yield rose to 2.813%, and the yield on the 2-year note climbed to 3.272%.
Rising bond yields might put pressure on growth stocks further, giving another reason for the volatility in the market to continue.
