Investors Look Ahead To Tomorrow's PCE Inflation Report

(Wednesday Market Open) Stock futures moved slightly upward as Fed Chairman Jerome Powell’s comments on a panel with European central bankers began this morning. Investors will have much more important economic and inflation data to consider through Friday.

Potential Market Movers

Ahead of comments by Federal Reserve Chairman Jerome Powell and other central bankers in Europe, equity futures moved slightly upward before the opening bell. Investors will then turn their attention to tomorrow’s Fed-favorite PCE inflation report for further guidance on prices and recession risk.

S&P 500 futures were up a slight 0.08% before the open but are still trying to move out of a losing week so far. Last week’s trading was the best session since 2020. Dow Jones futures were up 0.39% and Nasdaq futures rose 0.10% before the bell.

Investors have a mix of data and comments to consider throughout today’s session. Before the session, Federal Reserve Bank of Cleveland president Loretta Mester said that if economic conditions remain the same by the next Fed meeting in late July, she’ll support another 75-basis-point hike. Meanwhile, Germany reported that June inflation slowed more than expected to 7.6% from 7.9% in May, which was the highest reading since German reunification.

In premarket trading, Pinterest PINS shares jumped more than 4% on the departure of its CEO, while General Mills GIS shares rose more than 2% after the company topped earnings and revenue forecasts for its most recent quarter.

Bed Bath & Beyond BBBY lost 15% before the open after reporting the exit of its CEO after a bigger-than-expected quarterly loss.

The Cboe Market Volatility Index (VIX) rose to 29 before the start of the trading day.

Reviewing the Market Minutes

In a sweeping sell-off sparked by the Conference Board’s below-expectations June consumer confidence reading, stocks suffered their worst day in two weeks with only one winning sector by the close—energy.

The S&P 500 (SPX) lost 2.1% by the close, followed by the Nasdaq Composite ($COMP) off 2.98% as technology companies—specifically chip companies—took a broad tumble back into deeper bear territory. The Dow Jones Industrial Average ($DJI)lost 491.27, or 1.58%.

As stocks suffered, the VIX added back more than a point to finish higher than 28. Inflation and recession fears may have recently subsided among some investors but clearly not in many households.

Joining last week’s University of Michigan consumer sentiment reading for a dismal look at how consumers are feeling about their inflation and recession prospects, the monthly Conference Board survey showed that consumers’ short-term outlook for income, business, and labor conditions was at the worst point in a decade, but the survey’s 12-month inflation expectations hit the highest level since 1987.

Thursday’s trifecta of Initial Jobless Claims, PCE inflation, and Chicago PMI data could fall into sharper focus as a result. The Federal Reserve is known to look at the Michigan and Conference Board surveys for insights, but PCE inflation in particular is seen as the Fed’s favorite inflation metric—and investors and the Fed still want to know if inflation has reached a peak.

The Conference Board said that in the past month, purchasing intentions for cars, homes, and major appliances held “relatively steady—but intentions have cooled since the start of the year.”

The report’s morning release turned the market around on the dime, reversing all major indexes that were up at least 1% after the open. Other analysts speculated that market liquidity has been low for some time now, and many investors are simply not looking to take on risk until conditions become clearer. And with portfolio rebalancing wrapping up for June and the second quarter on Thursday, that may introduce another level of volatility some might want to avoid.  

But free-floating consumer and investor anxiety wasn’t the only story of the day. Home-price growth did cool a bit in April, according to the S&P CoreLogic Case-Shiller National Home Price Index, which focuses on major metropolitan areas around the country. Earlier in June, mortgage rates reached the highest levels in more than 13 years for two weeks straight.

Better market news emerged before the opening bell that China was slashing quarantine requirements for international visitors—another important step in fully reopening its economy and likely narrowing two years of pandemic-driven supply chain problems around the world. Before the midday dip, investors also welcomed lower U.S. trade deficit numbers that could provide a necessary boost to U.S. gross domestic product (GDP).

With GDP already down in 2022’s first quarter, a second-quarter dip would fit the official definition of a recession.

The prospect of a recovering global economy helped boost energy prices. WTI crude oil finished the day at $111.84 per barrel, up 2.27%. Among individual energy stocks, Hess Corp. (HES) rose another 5.57% in yesterday’s session after gaining more than 5% on Monday. Occidental Petroleum (OXY), now 16.4% owned by Berkshire Hathaway, finished the day up 4.77% after Warren Buffett’s Berkshire Hathaway disclosed Tuesday that it now owns 16.4% of the oil, gas, and chemical company after purchases in recent months.

The 10-year U.S. Treasury (TNX) rose to 3.206% from 3.193% on Monday.

Among other stocks making news on Tuesday:

• Nike NKE was left in the dust a second day, closing down 7% after beating on sales and earnings expectations Monday.

• Las Vegas Sands LVS, which owns casino and resort properties in China, rose 4%.

• Robinhood HOOD lost 2.80% in Tuesday’s trading following a Monday report that cryptocurrency exchange FTX was considering buying the trading platform.

CHART OF THE DAY: CHIPS CLIPPED. The semiconductor industry has had a rough go in 2022—could China’s reopening make a difference? On Tuesday, the PHLX Semiconductor Index (SOX—candlesticks) lost 2.63% and is down more than 33% year-to-date. Meanwhile, the S&P Technology Select Sector Index (IXT—pink) lost more than 2% in Tuesday’s trading and is now down 26% for the year. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Three Things to Watch

View on Value: With major indexes in or near bear territory at mid-year, will 2022 look like a victory for value or growth? Inflation news and the start of earnings season in the next two weeks could offer a clearer picture. So far this year, the S&P Pure Growth Index ($SP500PG) has lost 29.03% year-to-date against a 5.34% retreat during the same time frame for the S&P 500 Pure Value Index ($SP500PV). But for now, Barron’s points out that recent movements in energy and technology stocks have put growth on an upward path.

Packing Up: AAA is predicting that 42 million people will be traveling over the Fourth of July weekend, up 4% over a year ago. It helps that average gas prices are now below the recent record high of $5—Monday’s report put the average at $4.81—though that level is still more than $1.80 above last year. AAA says the slight increase in car travel from a year ago despite higher fuel costs has a lot to do with flight cancellations. According to tracking service FlightAware, U.S. airlines canceled more than 2,800 flights over the Memorial Day weekend, equal to 2% of their schedules.  

Good To Be a Landlord: With existing single-family home prices at a national average of $407,600 in May, The Wall Street Journal reported that many potential homebuyers are giving up and looking to rent. Quoting a survey from John Burns Real Estate Consulting, 74% of single-family landlords surveyed said they expected to continue seeing “strong” or “very strong” leasing activity over the next two quarters, down from a high of 91% during 2021 but still above where sentiment was before the pandemic. National Public Radio reported that listed rents are up 15% nationwide and as much as 30% in some cities.

Notable Calendar Items 

June 29: Gross domestic product (GDP) and earnings from Paychex PAYX and General Mills GIS

June 30: Initial Jobless Claims, PCE inflation, Chicago PMI, and earnings from Walgreens Boots WBA, Micron MU, and Constellation Brands STZ

July 1: ISM Manufacturing PMI

July 4: Markets closed for Independence Day

July 5: Factory Orders

July 6: JOLTS job openings report, ISM services index and S&P U.S. services PMI

July 7: ADP National Employment Report, Challenger job cut survey, and earnings from Seven & I Holdings SVNDY, Levi Straus LEVI, and WD-40 WDFC

TD Ameritrade® commentary for educational purposes only. Member SIPC.

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