The stock market plunged on Wednesday on the back of stronger economic data and the start of the Federal Reserve’s “volume tightening”.
177 points or 0.5% lower
Decreased by 0.7%. The stocks tried to accumulate in the afternoon, but eventually stumbled.
“As US stocks turned negative and expectations grew, the central bank will not ease its rate hike campaign … solid U.S. economic data,” writes Edward Moya, Onda’s senior market analyst.
The declines have come even after all three key indices ended in the red on Tuesday, amid concerns New plans of the European Union for control of Russian oil Oil prices could lead to significant rises. On Wednesday, WTI crude rose $ 115 a barrel just minutes before closing, up more than 12% over the past month.
Now, markets are pouring in on a number of economic data, which could have an impact on the central bank’s plans to raise inflation and interest rates.
The latest is the Product Code of the Institute for Supply Management. It was 56.1 in May and 55.4 in April, and any reading above 50 indicates growth in activity. Citigroup economist Andrew Hollenhorst writes that new orders have grown and manufacturers are expecting strong demand despite rising interest rates.
The hot production number could easily indicate that inflation is too high, and that the central bank is sticking to its plan to raise interest rates much faster than it has in general in recent years.
The Department of Labor said on Wednesday that jobs were at record levels, with 11.4 million jobs opened in April. Recently, according to 22V research, there are about 1.9 opportunities for every unemployed person. Those kinds of dynamic markets want to move away. Businesses, eager to go to work, have to pay higher wages, which forces them to raise prices, contributing to overall inflation.
The bond market did not take the two pieces of data very seriously. The 2-year Treasury dividend is currently trying to predict the size of the federal-financial ratio in a year or two. .
More data is yet to come. Unemployment demands are pending on Thursday, and then the May jobs report will be released on Friday. Economists expect 328,000 jobs to be added, down from the 428,000 jobs added in April. Markets want to see a strong number of jobs, which indicates a strong economy, but not very strong, which could be an indication that the central bank needs to do more to slow the economy down against inflation. As more people earn income and expenses, a much higher number than expected can point to even higher inflation.
This has been the main point of the market lately. Recent inflation data To the delight of the stock market, it shows that the rate of inflation has slowed. The central bank may soon slow down the pace of interest rate hikes. Now, the markets – and the central bank – need to find consistent evidence that inflation will not be so high.
That evidence has not been shown this week, and as stocks have accumulated in recent weeks, the market may brace for some negative news on that front. The S&P 500 is up about 8% from its intraday low of May 20.
“Finally May is over, but inflation worries, war and high energy prices welcome the new month with us,” wrote Ibek Oskardeskaya, senior analyst at the Swiss Bank.
In line with high inflation, the central bank is starting to reduce its balance sheet today. In a process known as Quantitative Tightening, the central bank does not reinvest the set amount of interest income in the bond market. Turning into less cash bonds will lower their prices, raise their yields and make investors more attractive. Already, 10-year Treasury yields have risen from 1.51% to 2.93% by the end of 2021, contributing to some decline in stocks this year.
The good news: The bond market may have already reflected the central bank’s balance sheet cut. “This may be the worst selling and volatility of the bond market [of] Ratio expectations are already behind us, ”writes Jonas Golderman, senior economist at Capital Economics.
However, one can only guess whether the 10-year yield will pop up again as demand for securities declines from the balance-cutting process. That would be problematic for the stock market.
“The elephant in the room is that today the central bank begins to reduce its $ 9 trillion balance sheet, with very little experience in the market,” writes Louis Navelier, founder of Navellier & Associates.
Fell 1%, Hong Kong
Here are five stocks moving on Wednesday:
(Ticker: CRM) Shares up 10% Business software company raised expectations For adjusted fiscal income.
At $ 7.41 billion in sales, the company reported a profit of 98 cents per share, beating the valuation of 94 cents per share. The company guided its full-year EPS to $ 4.75 in the middle of its range, noting that its operating range will grow as it controls costs while increasing sales. This is good news for a stock that has already lost in a year. ”
The April quarter, which is a great relief to technology investors, is far better than the guideline, “said Dan Yves, a Wetbush Securities analyst.
(CPRI) rose 2.3% after the company announced A profit $ 1.02 a share, surpassing the 82 cent estimate and selling at $ 1.49 billion, $ 1.41 billion more than expected. The company has announced plans to repurchase new $ 1 billion worth of shares.
The Secret of Victoria
Shares rose 8.8% after the company announced (VSCO) A profit The stock traded at $ 1.11 billion, beating expectations of $ 1.11 billion at $ 1.11 a share.
(AMZN) shares rose 2.5% calling JPMorgan its best e-commerce idea.
Park Hotels & Resorts
(PK) shares rose 3.5% after being upgraded to Buy from Hold at Truist.
Write to Jack Denton at [email protected] and Jacob Sonenshine at [email protected]