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US Stocks Decline as Recession Fears Intensify

Business Maverick

Business Maverick

US Stocks Decline as Recession Fears Intensify

Stock figures near the Tokyo Stock Exchange. Photographer: Akio Kon/Bloomberg
By Bloomberg
05 Jul 2022 0

Stocks tumbled as recession fears gripped markets, outweighing the optimism over US-China talks aimed at tariff reductions

The S&P 500 dropped 2% while the Nasdaq 100 trimmed losses after falling as much as 1.9%. Treasury yields declined, with the 10-year yield around 2.81%. The dollar rose, making commodities priced in the currency less attractive. Crude oil dropped to trade around $101 a barrel while copper, which is considered an economic bellwether, fell to its lowest in 17 months.

US and Chinese officials held discussions after reports that Washington is close to rolling back some of the trade levies imposed by the former administration. But investors continue to fret over a potential US recession and stubborn inflation. While reducing tariffs on imported Chinese goods could impact consumer prices in the US, some suggest that it could do little to cool inflation.

Data released Tuesday also showed durable goods orders and factory orders rose more than expected in May.

“With the first half of the year moving into the rear-view mirror investors can’t help but wonder what lies ahead in a year that thus far has wrought heightened levels of uncertainty, disruption and dysfunction that has rattled asset class values across the spectrum of the good, the bad, and the ugly,” said John Stoltzfus, chief investment strategist at Oppenheimer & Co.

Oil prices were weighed down by broader markets

The odds of a US recession in the next year are now 38%, according to latest forecasts from Bloomberg Economics. Signs of a rapidly deteriorating US economic outlook have now spurred bond traders to pencil in a complete policy turnaround by the Federal Reserve in the coming year, with interest-rate cuts in the middle of 2023.

“If the Fed changes course now, they might as well pack their bags and turn the lights off,” Kenneth Polcari, senior market strategist for Slatestone Wealth LLC, wrote in a note. “Yes, the economy is slowing but inflation continues to be an issue and that is the focus now.”

In Australia, the central bank raised its key interest rate as expected to 1.35%. It’s among more than 80 central banks to have raised rates this year. The nation’s dollar weakened after the decision.

Bitcoin fell, trading below the $19,500 level.

Bitcoin versus Ether? Stablecoins versus central bank digital currencies? What are NFTs really? What is the next shoe to drop in the crypto washout and where will the next bubble inflate? Click here to participate in this week’s MLIV Pulse survey, which takes only one minute and is anonymous.

What to watch this week:

  • FOMC minutes, US PMIs, ISM services, JOLTS job openings, Wednesday
  • EIA crude oil inventory report, Thursday
  • Fed Governor Christopher Waller, St. Louis Fed President James Bullard, scheduled to speak, Thursday
  • ECB account of its June policy meeting, Thursday
  • US employment report for June, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 2% as of 11:09 a.m. New York time
  • The Nasdaq 100 fell 1.1%
  • The Dow Jones Industrial Average fell 2.2%
  • The Stoxx Europe 600 fell 1.7%
  • The MSCI World index rose 0.3%

Currencies

  • The Bloomberg Dollar Spot Index rose 1.2%
  • The euro fell 1.7% to $1.0243
  • The British pound fell 1.7% to $1.1907
  • The Japanese yen fell 0.2% to 135.89 per dollar

Bonds

  • The yield on 10-year Treasuries declined six basis points to 2.82%
  • Germany’s 10-year yield declined 13 basis points to 1.20%
  • Britain’s 10-year yield declined 12 basis points to 2.08%

Commodities

  • West Texas Intermediate crude fell 6.6% to $101.30 a barrel
  • Gold futures fell 1.9% to $1,767.70 an ounce


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