The Dow dropped by more than 550 points, or 1.8 percent, shortly after the market opened, and the Nasdaq opened sharply in the red as well. The S&P 500 fell by more than 1.5 percent.
West Texas intermediate crude oil futures fell under $104 per barrel, putting renewed pressure on energy prices. Treasury yields continued to decline over the past week, and the benchmark 10-year yield dropped under 2.9 percent.
Even during brief bear market rallies, worries about inflation and whether higher prices could trigger an economic slowdown or lead the Federal Reserve to tighten monetary policy even more at the expense of economic growth have kept a weight on stocks. Officials from the Federal Reserve have up to this point maintained the central bank’s hawkish stance, and last week Fed Chair Jerome Powell said there was “no guarantee” the Fed could avoid a hard landing.
Stock prices have decreased. Bond yields are declining. Oil costs are declining. Spreads on corporate credit are increasing. The value of the dollar has increased. The head of U.S. economics at Renaissance Macro Research, Neil Dutta, wrote in an email on Tuesday morning, “This is a recession trade. There isn’t any other way to put it.
Each of the major averages has fallen by double-digit percentages since the beginning of 2022, with the S&P 500 having experienced its worst start to a year since 1970 and the Dow since 1962. Recent indicators of the U.S. economy’s softening include falling consumer confidence, short-term expectations that are at or near a decade low, and spending that fell for the first time this year in May.
Sam Bullard, senior economist at Wells Fargo, noted in a note published on Tuesday that “last week’s data performance, including a downward revision to Q1 GDP and evidence of sustained deceleration in consumer spending, suggests the US economy is clearly losing momentum in the face of rising inflation and tightening financial conditions.”
This week will also see the release of more crucial economic data, such as the non-farm payrolls report on Friday. According to economists, there should have been a more moderate return of 275,000 jobs in June, a significant decline from the 390,000 added the month before. In addition, the unemployment rate is predicted to remain unchanged at 3.6 percent, just 0.05% higher than the pre-pandemic low of 3.5 percent set in February 2020. The Federal Reserve will also be releasing its June meeting minutes on Wednesday, which will pave the way for its first rate increase of 75 basis points since 1994 and its most aggressive action against inflation this cycle.
Following the actions of a stepped-up 75 basis point federal funds rate hike and the explicit commitment to continue tightening aggressively until officials see “clear and convincing” signs that inflation is coming down to target, Wells Fargo’s Bullard said, “the current hawkish tone should be pervasive throughout.” “We’ll be watching for hints as to what inflation evidence officials are keeping an eye on to help make that decision.
