In another choppy trading session, U.S. equities finished mixed, with the S&P 500 and NASDAQ very near the unchanged mark, after investors appeared to struggle with conviction on the heels of yesterday's sharp drawdown. Confidence remained hindered amid the rising inflation pressures that have the Fed and other key central banks aggressively tightening monetary policies, causing the flare up in recession concerns. Equity news was mixed, with General Mills topping earnings expectations and raising its dividend, while McCormick & Company noticeably missed forecasts and lowered its profit forecast, and FedEx saw pressure as the Street digested its outlook. In economic news, mortgage applications rose for a third-straight week, and Q1 GDP was unexpectedly revised to a larger contraction than previously estimated. Treasuries moved higher to apply downside pressure on yields and the U.S. dollar was higher, remaining near 20-year highs. Meanwhile, crude oil prices lost ground, and gold is traded modestly to the downside. Europe finished mostly lower despite some relatively favorable German inflation data, while Asia saw widespread losses following the negative tone set in the U.S. yesterday.
The Dow Jones Industrial Average rose 82 points (0.3%) to 31,029, while the S&P 500 Index decreased 3 points (0.1%) to 3,819, and the Nasdaq Composite declined 4 points to 11,178. In moderate volume, 4.1 billion shares of NYSE-listed stocks were traded, and 5.5 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.98 to $109.78 per barrel. Elsewhere, the gold spot price shed $1.40 to $1,819.80 per ounce, and the Dollar Index gained 0.6% to 105.12.
General Mills Inc. (GIS $75) reported adjusted fiscal Q4 earnings-per-share (EPS) of $1.12, compared to the $1.01 FactSet estimate, as revenues rose 8.0% year-over-year (y/y) to $4.9 billion, north of the Street's forecast of $4.8 billion. The company said it saw organic net sales—excluding acquisitions, divestitures, and foreign exchange—rise 13.0% y/y, aided by price realization and mix, while its overall sales were negatively impacted by divestiture and acquisition activity, and foreign exchange headwinds. GIS said its gross margin expanded even amid significant input cost inflation. GIS raised its quarterly dividend by 6.0% to $0.54 per share. Shares traded solidly higher.
McCormick & Company Inc. (MKC $86) posted Q2 EPS of $0.48, well below estimates of $0.65, with revenues declining 1.0% y/y to $1.5 billion, south of the expected $1.6 billion. The seasonings company said it is currently navigating a challenging global environment including persistently high cost inflation and supply chain challenges, significant disruption in China from COVID-related lockdowns and the conflict in Ukraine. MKC lowered its full-year earnings guidance and reaffirmed its revenue forecast. Shares were lower.
FedEx Corporation (FDX $234) was in focus as the company conducts its investor meeting for the first time in a decade, in which it forecasted EPS growth of as much as 19.0% annually over the next three years and sales growth of up to 6.0% despite slowing package demand which was boosted by the pandemic. The company also raised its forecast for operating margins as it moves to unlock value from its foundation. However, shares traded lower after the company reported last week mixed quarterly earnings results but issuing 2023 guidance that was above estimates.
The equity markets have remained choppy 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.
Mortgage applications rise for a third week, Q1 GDP revised negatively
The MBA Mortgage Application Index gained 0.7% last week, following the prior week's increase of 4.2%. The index rose for a third-straight week as a 1.9% increase in the Refinance Index was accompanied by a 0.1% rise for the Purchase Index. The rise came as the average 30-year mortgage rate declined 14 bps to 5.84%, but is up 264 bps versus a year ago.
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 final look (of three) at Q1 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of contraction of 1.6%, versus estimates to be unrevised at the 1.5% decline posted in the second release. Q4's figure was unadjusted at a 6.9% increase. Personal consumption was revised noticeably lower to a 1.8% rise for Q1 from the previous estimate of a 3.1% gain and versus expectations to be unrevised. Q4 consumption was unadjusted at a 2.5% rise.
On inflation, the GDP Price Index was revised higher to an 8.2% gain, versus estimates the be unrevised at an 8.1% increase, and the core PCE Index, which excludes food and energy, was adjusted higher to a 5.2% advance compared to expectations of an unadjusted 5.1% gain.
Treasuries moved higher with yields losing ground as action in the bond markets remains choppy with the Fed aggressively 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 down 7 bps to 3.07%, the yield on the 10-year note decreased 11 bps to 3.10%, and the 30-year bond declined 10 bps to 3.21%.
Tomorrow's economic calendar will hold personal income and spending for May, forecasted to show that income increased 0.5% month-over-month and spending gained 0.4%. Initial jobless claims for the week ended June 25 will also be released, with 230,000 first-time unemployment applications expected to have been filed, and the Chicago PMI will round out the docket, estimated to have declined to a level of 58.0 for this month from May's 60.3 reading, with a reading above 50 denoting expansion in activity.
Europe mostly lower despite relatively favorable German inflation data
European equities finished mostly lower, with the markets continuing to contend with headwinds in terms of tightening monetary policies on both sides of the pond that has caused global recession concerns to flare up. Inflation has been a main driver of monetary policy aggressiveness, but today Germany reported that its preliminary June consumer price inflation data came in cooler than expected. However, Spain's preliminary consumer price inflation estimate came in much hotter than expected for this month. 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 markets paid close attention to a European Central Bank (ECB) summit, in which the heads of the Fed, ECB, and Bank of England are discussing their policies. All of them agreed that fighting inflation is the most important issue, and that even though the battle may cause some pain, a failure in restoring price stability would cause even more harm. In other economic news, Eurozone economic confidence declined by a smaller amount than expected for this month. The euro and British pound were lower versus the U.S. dollar, while bond yields across Europe and in the U.K. traded to the downside.
The U.K. FTSE 100 Index lost 0.2%, France's CAC-40 Index declined 0.9%, Germany's DAX Index dropped 1.7%, Spain's IBEX 35 Index fell 1.6%, Italy's FTSE MIB Index declined 1.2%, while Switzerland's Swiss Market Index was little changed.
Asia gives back some of the week's gains
Stocks in Asia pared its weekly advance with the sharp drop in the U.S. yesterday setting a negative tone. The markets remained skittish amid rising concerns regarding a global recession as monetary policies in North America and Europe tighten in response to festering 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 has only a few days left. Economic activity in China has slowed and 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, Japan's retail sales rose by a smaller amount than expected in May, while South Korea's consumer confidence deteriorated in June.
Japan's Nikkei 225 Index declined 0.9%, with the yen softening versus the U.S. dollar. The yen has fallen sharply since March to lows not seen in 24 years as the Bank of Japan holds onto its ultra-loose monetary policy amid tightening in the U.S. and Europe. China's Shanghai Composite Index fell 1.4% and the Hong Kong Hang Seng Index dropped 1.9%. Australia's S&P/ASX 200 Index declined 0.9%, India's S&P BSE Sensex 30 Index dipped 0.3%, and South Korea's Kospi Index decreased 1.8%.
Tomorrow's international economic calendar will be robust, with reports slated for release to include the manufacturing and services PMIs from China, housing starts and construction data from Japan, the unemployment rate and retail sales from Germany, GDP and housing prices from the U.K., CPI and PPI from France, and PPI from Italy.
