3 Things… 

1. Trends/Bonds: S&P500 remains just under 14% below its 200, downtrend continues; NASDAQ remains over 20% below its 200, downtrend intact; 15% of the S&P 500 and 27% of the NASDAQ, respectively, are above their 50-Days; Bulls24:Bears23; VIX 29.48; [1] The yield on the benchmark 10-year Treasury note fell to 2.886%. 2yr/10yr hit 0.98. The yield on the 30-year Treasury bond moved higher to 3.107%. Yields move inversely to prices and 1 basis point is equal to 0.01%. [2]
2. Sectors: Best 3-month sectors: Staples  (-4.76%), Energy (-5.05); Utilities (-5.82%),  Crypto/Bitcoin $19,233.78; [3]
3. Structured Note Values
   1. KRE Pricing Value 2/28/22: 73.49, Current 58.25-Delta -20.74%
   2. XLE/XOP Lowest, XLE Pricing Value 3/25/22: 78.75, Current: 72.53, Delta -7.90%; XOP Pricing Value 3/25/22: 138.60, Current Value: 120.56, Delta -13.02%
   3. Lower of GDX/GDXJ; GDX Pricing Value: 4/29/22: 34.99, Current: 27.14 Delta -22.44%; GDXJ Pricing Value 4/29/22: 42.95, Current: 31.72 Delta -26.15%
   4. Lower of GDX/GDXJ; GDX Pricing Value: 5/26/22: 32.39, Current: 27.14 Delta -16.21%; GDXJ Pricing Value 5/26/22: 39.67, Current: 31.72, Delta -20.04%
   5. ARKK Pricing Value 6/15/22: 39.42, Current: 41.01, Delta +4.03 [4]

This Week’s Quotable

“[There’s a] Housing correction dead ahead, … not a crash—a correction. [The slow-down will be due to] spiking mortgage rates; 1^st time home buyers being locked out; and employers rolling back remote work [options]. If mortgage rates stay around 6% then we get the correction. If we get much more than that we get a more significant pull-back. The reason there won’t be a crash is because we have these long-term investors in the market not looking to flip a house but to hold it as part of a business model.” Moody’s Economist Mark Zandi on CNBC’s “Fast Money” Monday. [5]

Recent Highlights

• PCE/Core PCE Inflation increased 6.3% and 4.7% (06/30)
• Personal Income increased 0.5% (06/30)
• Personal Spending decreased 0.4% (06/30)
• Initial Claims decreased to 231,000 (06/30)

In the Markets

U.S. stocks ended lower on Thursday, with the S&P recording its worst first-half performance in more than 50 years. The Dow and S&P 500 also registered their worst quarterly performance since the first quarter of 2020, while the Nasdaq recorded its worst quarter since 2008. All the three major indexes ended Thursday’s session in negative territory.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) slid 0.8% or 253.88 points to close at 30,775.43 points.

The S&P 500 declined 0.9% or 33.45 points to finish at 3,785.38 points. Energy, consumer discretionary and tech stocks were once again the biggest losers.

The Energy Select Sector SPDR (XLE) gave up 1.1%. The Consumer Discretionary Select Sector SPDR (XLY) slipped 1.5%, while the Technology Select Sector SPDR (XLK) lost 1.3%. Seven of the 11 sectors of the benchmark index ended in negative territory.

The tech-heavy Nasdaq fell 1.3% or 149.16 points to end at 11,028.74 points.

The fear-gauge CBOE Volatility Index (VIX) was up 1.95% to 28.71. Decliners outnumbered advancers on the NYSE by a 1.75-to-1 ratio. On Nasdaq, a 1.52-to-1 ratio favored declining issues. A total of 12.58 billion shares were traded on Thursday, lower than the last 20-session average of 12.86 billion.

Markets Volatile on Recession Fears

Thursday marked the final day of the first half of the year and also the second quarter. The first half, particularly the second quarter, witnessed one of the most turbulent times for the markets in recent times, as major indexes entered bear market and correction territory from their all-time highs.

Stocks started taking a hit from the beginning of the year as rising prices and soaring interest rates have been making investors jittery. Investors now are fearing an economic slowdown owing to the aggressive rate-hike stance adopted by the Fed to check surging inflation. This has been taking a toll on stocks.

On Thursday, a fresh batch of economic data showed personal consumption expenditures declining in June, indicating that people are now skeptical about spending freely, as soaring price of consumer goods is pinching their pockets. The consumption data came just a day after a downwardly revised first-quarter GDP showed that growth contracted more than it was previously expected in the first three months of the year.

This further dented investors’ confidence. Healthcare, energy and consumer discretionary stocks were the big losers. Shares of HCA Healthcare, Inc. (HCA) declined 4.3%. Shares of Carnival Corporation & plc (CCL) fell 2.5%, while Royal Caribbean Cruises Ltd. (RCL) and Norwegian Cruise Line Holdings Ltd. (NCLH) declined 3.1% and 3.9%, respectively.

Investors’ Worries Aggravate

Stocks have been taking a beating since the beginning of the year. A rise in COVID-19 cases owing to the Omicron variant, followed by Russia’s invasion of Ukraine during the initial months aggravated concerns over a financial meltdown. Fears of a possible recession further escalated on decades-high inflation and aggressive interest rate hikes by the Fed.

Higher interest rates sent bond yields higher and historically price equity valuations saw growth stocks, especially the tech sector, taking a hit. Future earnings, like those promised by growth businesses, become less alluring as rates rise. Thus, tech stocks have been one of the worst affected this year, which saw the Nasdaq taking a major hit. The index is now down over 31% from its Nov 22 all-time high.

The Fed has so far lifted the policy rate by 150 basis points in its past three meetings and more hikes are likely to follow. Aggressive interest rate hikes have now raised concerns over a slowing economy, which have been denting the confidence of investors, leading to massive selloffs almost every week. The S&P 500 is also down by more than 20% at the halfway point of the year. The Nasdaq and S&P 500 are both in bear market territory, while the Dow is in a correction zone.

Economic Data

Economic data released on the last day of the quarter further aggravated fears among investors. Consumer spending slowed, disposable income decreased and inflation remained high.

The Commerce Department said on Thursday that inflation rose marginally lower than expected by still remained hot. Core personal consumption expenditures (PCE) prices jumped 4.7% year over year in May, declining 0.2% from the previous month. Economists had expected a rise of 4.8%.

On a month-over-month basis, the index, which excludes prices of volatile food and energy, rose 0.3%, less than analysts’ expectations of a rise of 0.4%. Headline inflation figures rose 0.6% in May, which was high compared to a 0.2% rise in April. This kept the year-over-year inflation figure at 6.3%, unchanged from April.

The report also mentioned that personal income rose 0.5% in May, higher than expectations of a rise of 0.4%. However, disposable personal income declined 0.1% on a month-over-month basis and 3.3% from a year ago.

Also, personal spending, after adjusting for inflation, saw a sharp decline of 0.4% in May from 0.3% in April. However, it was up 2.1% year over year.

Goods inflation jumped 9.6%, while services inflation increased 4.7% month over month in May.

In other economic data released on Thursday, the Labor Department said that initial jobless claims fell to 231,000 for the week ending Jun 25, a declining 2,000 from the previous week’s revised level. The four-week moving average also increased to 231,750, an increase of 7,250 from the previous week’s revised average of 224,500.

Continuing claims came in at 1,328,000, a decline of 3,000 from the previous week’s revised level. The previous week’s numbers were revised down by 16,000 from 1,315,000 to 1,331,000. The 4-week moving average came in at 1,319,500, an increase of 5,500 from the previous week’s revised average.

Half-Yearly Roundup

The first half of the year has been one of the worst for markets in decades. The S&P 500 and Nasdaq are in the bear market and the Dow is in correction territory. The S&P 500 is down 20.6% year to date, recording its worst first half since 1970 when it declined 21.1%.

The Nasdaq fell 29.5% through Thursday’s close to record its worst first half ever.

The Dow fell 15.3% through Thursday to record its worst first half since 1962 when it declined 23.2%.

Quarterly Roundup

All the three major indexes recorded their second straight quarterly decline. The S&P 500 declined 18.3% through Thursday’s close. The last time the index recorded two straight quarters of decline was in 2015.

The Dow declined 12.8% for the quarter. The last time the blue-chip index posted two declines for two consecutive quarters was in 2015.

The Nasdaq ended the second quarter down 22.4%. The tech-heavy index recorded two-straight quarters of decline for the last time in 2016.

Monthly Roundup

The S&P and Dow ended the month down 9% and 7.3% repectively. The Nasdaq declined 9.1% in June. [6]

Sources: [1][3][4] Stockcharts.com; [2] CNBC.com; [5] Housing correction is ‘dead ahead,’ warns economist Mark Zandi (cnbc.com); (cnbc.com); [6] Zacks Professional Services, “Today’s Key Market and Economic News” for Friday June 24, 2022;