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By Nicholas
Jasinski | Thursday, June 23 Angst.
Stock
indexes ended the day solidly higher, but under the surface, markets
continued to trade like a recession is coming. Cyclical stock sectors,
commodity prices, and bond yields all fell. The U.S. price of
crude oil has lost almost 6% over the past two days, to
$104.27 a barrel today. Less economic activity would mean less demand for
driving, industrial production, and other uses of oil and gas. Copper, iron,
and aluminum prices all fell today, as well. More than $100 a barrel is still a sky-high
oil price by historical standards, but today was the lowest close since May
10. S&P 500 energy stocks have lost 23% since June
8, including a 3.7% drop today. Materials, industrials, and financials—all
cyclicals—were the other losing sectors in the index, while utilities, health
care, and consumer staples were the biggest winners, all up about 2% or more.
Those are the classic defensive sectors that tend to hold up best when the
rest of the economy is falling apart. People still need to use electricity,
visit the doctor, and buy cereal and toothpaste no matter what GDP growth is
doing, after all. "Recession talk remains the focal point
on Wall Street and that means whatever stock market rebounds emerge will
probably be short-lived," wrote Edward Moya, senior market analyst,
the Americas, at currency brokerage Oanda. "Wall Street won’t
have any answers anytime soon for the questions on when will inflation peak,
how soon will we see a recession, and how high will the
Federal Reserve raise rates." The overall S&P 500 rose 1% today, while
the Dow Jones Industrial Average added 0.6% and the Nasdaq
Composite popped 1.6%. Lower bond yields helped boost
technology stocks, which remain among the hardest-hit areas of the market
this year. The Fed's Jerome
Powell continued his two-day Congressional
testimony about monetary policy today, this time before the House
Financial Services Committee. He didn’t rock the boat, after his Wednesday
remarks sent recession concerns higher and stocks lower. Over in the bond market, economic worries
took the form of lower bond yields, which fall when the price of a bonds
rises. The 2-year U.S. Treasury yield
fell to 3.01% today, after hitting 3.45% just last Tuesday. The 10-year
Treasury yield is down to 3.07%, from 3.49% last week. That latest move lower in yields has come
despite the Fed getting more aggressive in its interest rate increase plans,
making it somewhat counterintuitive. Blame recession fears, once again. "The fall in the 10-year Treasury yield
presumably reflects expectations that a significant downturn in the U.S.
economy will cause inflation to soften and the Fed to tighten policy by less
than previously anticipated," wrote Franziska Palmas,
markets economist at Capital Economics, today. Palmas sees the concern about an imminent
U.S. recession as overdone, and expects the Fed to continue to raise
rates until early 2023. She sees the 10-year yield ending this year at 4%. Just don't expect the path there to be
anything close to straight. |
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DJIA: +0.64% to 30,677.36 The Hot Stock: Autodesk +8.4% Best Sector: Utilities +2.4% |
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