A measure of US manufacturing activity weakened in June to a two-year low as new orders contracted. Traders should brace for a “recession shock” following the worst first-half for the US equities in five decades, according to Bank of America Corp.’s Michael Hartnett. The risk of a renewed selloff in stocks is high as investors are only pricing a mild recession, said Goldman Sachs Group Inc. strategists.
“This week marks a significant regime shift in the market: we are pivoting away from higher inflation to weaker global growth and imminent recession risk as the dominant market driver,” wrote George Saravelos, global head of currency research at Deutsche Bank.
Both stocks and bonds were rocked by outflows this week as investors fear the global economy could contract amid sky-high inflation and hawkish central banks. About $5.8 billion exited global equity funds in the week through June 29, BofA said, citing EPFR Global data. Bonds had redemptions of $17 billion.
A survey conducted by 22V Research showed that 71% of the investors polled believe that second-quarter results will be a negative driver for stocks. The respondents also estimated 2022 earnings-per-share will come in around $212 — 7% lower than consensus forecasts of $228, wrote founder Dennis DeBusschere.
“There’s a lot of nervousness about second-quarter earnings, which will start next week, and early indications that the warnings coming from company management are going to cause analysts to drastically reduce their earnings estimates for the second half of the year and perhaps even into 2023,” said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management.
Chipmakers were under pressure after Micron Technology Inc.’s profit warning. General Motors Co. expects second-quarter sales and profit to take a hit due to supply-chain problems, but the automaker said it can make up for delayed production later this year.
Meantime, a flurry of blank-check mergers were called off over the past 24 hours amid market turmoil. The De-SPAC Index, a basket of companies that completed their tie-ups, has crashed almost 70% this year and more than 700 special-purpose acquisition companies are either on the hunt for deals or racing the clock to close ahead of deadlines.
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Some of the main moves in markets:
- The S&P 500 fell 0.5% as of 12:02 p.m. New York time
- The Nasdaq 100 fell 0.8%
- The Dow Jones Industrial Average fell 0.6%
- The Stoxx Europe 600 was little changed
- The MSCI World index fell 0.6%
- The Bloomberg Dollar Spot Index rose 0.5%
- The euro fell 0.7% to $1.0407
- The British pound fell 1.1% to $1.2047
- The Japanese yen rose 0.5% to 135.08 per dollar
- The yield on 10-year Treasuries declined 15 basis points to 2.87%
- Germany’s 10-year yield declined 10 basis points to 1.23%
- Britain’s 10-year yield declined 14 basis points to 2.09%
- West Texas Intermediate crude rose 2.1% to $108 a barrel
- Gold futures were little changed