U.S. equities finished solidly to the downside, reversing earlier gains, as the markets continue to struggle to keep the positive momentum from bouncing off bear market lows. Growing recession concerns remain the main culprit, as the Fed and other global central banks tighten policy in response to persistent inflation pressures. In economic news, June Consumer Confidence fell short of forecasts, while regional manufacturing activity deteriorated, housing prices continued to rise, the trade deficit narrowed, and wholesale inventories increased. Treasuries were little changed, and the U.S. dollar rebounded from a recent decline. Meanwhile, crude oil prices were higher, and gold dipped. In equity news, Dow member Nike reported stronger-than-expected quarterly results, but its China sales slumped, while a number of major banks announced dividend increases following the 2022 stress tests. Europe gained ground in most regions, and Asia finished mostly higher, with the global markets aided by continued easing of China COVID restrictions.
The Dow Jones Industrial Average fell 491 points (1.6%) to 30,947, the S&P 500 Index decreased 79 points (2.0%) to 3,822, and the Nasdaq Composite declined 343 points (3.0%) to 11,182. In moderate volume, 4.2 billion shares of NYSE-listed stocks were traded, and 5.3 billion shares changed hands on the Nasdaq. WTI crude oil rose $2.19 to $111.76 per barrel. Elsewhere, the gold spot price decreased $4.40 to $1,820.40 per ounce, and the Dollar Index gained 0.5% to 104.47.
The equity markets remained volatile as they wrestle with an aggressive Fed, which has signaled that restoring price stability is its number one goal and conceding that the path to a soft landing has become "more challenging."
Amid this market backdrop, Schwab's Chief Investment Strategist, Liz Ann notes in her article, Panic Is Not a Strategy—Nor Is Greed, how disciplined investing helps investors navigate through volatile environments. You can follow Liz Ann on Twitter: @LizAnnSonders.
Read all our market commentary on our Insights & Education page, and you can follow us on Twitter at @SchwabResearch.
In earnings news, Dow member Nike Inc. (NKE $103) reported fiscal Q4 earnings-per-share (EPS) of $0.90, including several non-recurring charges, notably due to its deconsolidation of its Russian operations, and compared to the FactSet EPS estimate of $0.80. Revenues declined 1.0% year-over-year (y/y) to $12.2 billion, above the Street's forecast of $12.1 billion. The company saw growth in its Nike direct revenues in most regions, but it was partially offset by a decline in China and the strength in the U.S. dollar had a negative impact. The company said its gross margin decreased 80 basis points (bps), primarily due to higher inventory obsolescence reserves in Greater China and elevated freight and logistics costs, partially offset by strategic pricing actions. NKE authorized a new 4-year $18.0 billion share repurchase program. Shares of NKE traded lower.
The Financials sector was in focus, as last week the Federal Reserve gave the green light to major banks' plans following the 2022 stress tests on the industry, which were instituted following the 2008 financial crisis and is a measure that ensures that banks could withstand any similar shock in the future. The results showed that all 34 of the major lenders cleared the hurdles and would collectively suffer $612 billion in losses under the test's hypothetical scenario of a severe downturn. In the wake of the outcome, a number of the major banks announced their intentions to raise their quarterly dividend, notably Dow member Goldman Sachs Group Inc. (GS $299), Bank of America Corp. (Bac $32), Wells Fargo & Company (WFC $40) and Morgan Stanley (MS $78). Surprising the Street, Dow component JPMorgan Chase & Co. (JPM $116) and Citigroup Inc. (C $47) opted for no change to their respective dividends. MS finished higher, while all the other banks traded lower.
Home prices continue to rise but Consumer Confidence falls again
The Conference Board's Consumer Confidence Index (chart) decreased to 98.7 in June from May's 103.2 level, and versus the Bloomberg estimate calling for a reading of 100.0. The overall index was hampered by the Expectations Index of business conditions for the next six months portion of the index, which decreased sharply to 66.4 from May's 73.7 level, while the Present Situation Index portion of the survey declined to 147.1 from the previous month's 147.4 level. On employment, the labor differential—consumers’ appraisal of jobs being "plentiful" minus being "hard to get"—increased slightly to 39.7 from the 39.5 level posted in May.
The Richmond Fed Manufacturing Activity Index surprisingly fell deeper into contraction territory (a reading below zero) for June, plunging to -19 from May's -9 reading, and well below forecasts for a reading of -7. New order volume and shipments dropped further into contraction territory, while prices paid decelerated but remained severely elevated.
The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 21.2% y/y gain in home prices in April, above the Bloomberg consensus estimate of an 21.1% rise. Compared to the prior month, home prices were up 1.8% on a seasonally adjusted basis, compared to forecasts of a 1.9% gain.
Schwab's Liz Ann Sonders discusses the housing market in her latest article, Can't Find My Way Home, noting how a spike in prices and interest rates has dealt a significant blow to housing affordability, elevating the potential for the housing market's weakness to dampen economic growth.
The advance goods trade balance showed that the May deficit narrowed more than expected to $104.3 billion, versus estimates calling for it to contract to $104.8 billion from April's upwardly-revised shortfall of $106.7 billion.
Preliminary wholesale inventories rose 2.0% month-over-month (m/m) for May, compared to expectations of a 2.1% gain, and versus April's upwardly-revised 2.3% increase.
Treasuries are little changed after last week's decline as action in the bond markets remains choppy. The volatility has come as the markets grapple with the economic implications of an aggressive Fed to fight persistent inflation, with recession uncertainty rising. Financial conditions have tightened amid the uneasiness and market skittishness has been exacerbated by the prospect of the Fed tightening policy amid the backdrop of a slowing economy.
For more on the Fed's actions check out our WashingtonWISE podcast, Fed Gets Aggressive: What's It Mean for Investors?, featuring Schwab's Chief Fixed Income Strategist Kathy Jones. Also, be sure to follow Kathy on Twitter: @KathyJones.
The yield on the 2-year Treasury note was up 1 bp to 3.14%, while the yields on the 10-year note and 30-year bond were flat at 3.20% and 3.30%, respectively.
The economic calendar for tomorrow will hold the final look (of three) at Q1 Gross Domestic Product (GDP), with economists projecting no revision to the 1.5% quarter-over-quarter (q/q) annualized rate of contraction, as well as no change to the prior 3.1% q/q rise in Personal Consumption. Both the GDP Price Index and the Core PCE Index are expected to remain at their respective q/q increases of 8.1% and 5.1%. The MBA Mortgage Applications Index for the week ended June 24 is also slated for release.
Europe mostly higher despite lingering headwinds
European equities were mostly higher, with the markets shrugging off growing headwinds in terms of tightening monetary policies on both sides of the pond that has caused global recession concerns to flare up. Eased COVID restrictions in China overnight appeared to aid the mood, while the markets digested consumer confidence reports out of Germany, France and the U.S. that showed sentiment deteriorated more than expected for all the countries. With recession concerns rising, Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, offers his latest article, Recession: The Risk Is in the Reversal, where he discusses how investors often notice the overall direction of markets and how missed changes in asset classes under the surface could see a shark attack take a big bite out of unprepared portfolios. You can follow Jeff on Twitter: @JeffreyKleintop. The euro and British pound were lower versus the U.S. dollar, while bond yields across Europe and in the U.K. were higher.
The U.K. FTSE 100 Index and Spain's IBEX 35 Index were up 0.9%, France's CAC-40 Index rose 0.6%, Germany's DAX Index gained 0.4%, Italy's FTSE MIB Index advanced 0.8%, while Switzerland's Swiss Market Index traded 0.9% lower.
Asia adds to yesterday's gains
Stocks in Asia added to Monday's advance, with technology stocks continuing to gain some momentum and the markets continuing to show resiliency in the face of global recession concerns as monetary policies in most parts of the globe tighten in response to high inflation pressures. However, China and Japan have continued to keep monetary policy accommodative, with the former deploying further stimulus to try to meet its economic goals which have been threatened by COVID-induced lockdowns. China has eased some restrictions and its stock markets have outperformed in Q2, which nears the finish line. Schwab's Jeffrey Kleintop discusses in his article, Recession in China?, how China's economy and consumer market has likely slipped into a recession, at least by China's standards. Jeff takes a look at the short-term and long-term impacts of any extended disruption of the lockdowns on consumer spending and business output. In economic news, Hong Kong's May exports unexpectedly declined and its imports rose at a smaller rate than expected, while after the markets closed, South Korea's retail sales rose solidly for last month.
Japan's Nikkei 225 Index rose 0.7%, with the yen continuing to stabilize after a noticeable plunge versus the U.S. dollar as the Bank of Japan lags behind central banks in North America and Europe. China's Shanghai Composite Index and the Hong Kong Hang Seng Index both gained 0.9%. Australia's S&P/ASX 200 Index also advanced 0.9%, India's S&P BSE Sensex 30 Index was as little changed, and South Korea's Kospi Index increased 0.8%.
The international economic calendar for tomorrow will offer retail sales and trade data from Japan, housing prices from the U.K., CPI from Spain, and confidence figures from the Eurozone.
