Stocks Tank To Hit Another New Low
2:39 pm Thursday, June 16th, 2022
The gains registered yesterday have evaporated today. It happened quickly, too, sending the Dow Jones Industrial Average below 30,000 in the process. The major indices opened sharply lower on a continued inclination to sell into strength that was catalyzed by concerns related to central banks shifting to an aggressive rate-hike regime to combat inflation.
Briefly, the Swiss National Bank surprised overnight with a 50-basis point rate hike (it’s first hike in 15 years), Brazil’s central bank raised its key lending rate by 50 basis points, and the Bank of England increased its key lending rate by 25 basis points while projecting a 0.3% decline in Q2 GDP as a whole. These moves all came on top of the Fed’s 75-basis point rate hike yesterday, which was the largest move in 28 years.
This collection of rate hikes has been perceived mostly as a catch-up trade, which is feeding concerns about a policy mistake that will lead to a recession. A discomforting thought today, however, is that many of the world’s central banks still have a long way to go with their rate hikes to get inflation under control.
The broad-based selling interest seen today, then, is rooted in economic misgivings involving the prospect of stagflation or recession. Neither is good for earnings prospects for most companies, which is why most stocks are trading lower.
The advance-decline line favors decliners by a nearly 9-to-1 margin at the NYSE and by a 5-to-1 margin at the Nasdaq.
The best-performing sector is the counter-cyclical consumer staples sector (-0.4%) while the worst-performing sector is energy (-4.6%). The former has been helped by Dow components Walmart (WMT) and Procter & Gamble (PG); meanwhile, energy is getting clipped by the growth concerns that are undercutting most cyclical sectors.
A batch of underwhelming economic data this morning that featured weaker-than-expected housing starts and building permits in May, higher-than-expected initial weekly jobless claims, and a contractionary reading for the June Philadelphia Fed Index simply compounded today’s growth worries.
On a related note, the Atlanta Fed’s GDPNow model is projecting no growth in real GDP in Q2 versus a prior projection for 0.9% growth.
