The bear market sell-off continued, with the Dow Jones, S&P 500 and Nasdaq all hitting their worst levels since late 2020. Stocks bounced on Wednesday following a big Fed rate hike and Fed chief Jerome Powell's comments. But they plunged the next day on fears that the Fed will have to push the economy into recession to rein in inflation. Several reports pointed to a fast-cooling economy already. Treasury yields soared to long-term highs on inflation fears, but backed off on recession worries. Crude oil and natural gas prices fell sharply.
Oracle and Adobe headlined key quarterly results, while Nucor and other steelmakers were bullish on earnings. Tesla raised vehicle prices yet again as new data showed its EVs dominated accidents involving driver-assist systems.
Stock Market Dives
The major indexes plunged to their worst levels in more a year with the S&P 500 and especially the Nasdaq in bear markets. Treasury yields skyrocketed on inflation worries, then pulled back in whipsaw action as recession fears mounted. Natural gas prices tumbled as a key LNG terminal will remain shut for weeks. Crude oil prices also sold off, especially on Friday, as demand concerns finally hit the energy sector. Retreating energy prices, if sustained, could be a good sign for cooling inflation. Bitcoin tumbled to an 18-month low.
Fed Hikes Sharply Amid Hot Inflation
Wednesday was a historic day, with the Federal Reserve's first 75-basis-point move since 1994. The Fed also began carrying out the balance-sheet runoff that had been put in motion at May's meeting. New Fed projections confirmed market expectations that policymakers will hike into restrictive territory, around 3.4% this year and 3.8% next, as they try to tame inflation. Policymakers still envision a soft landing, with the jobless rate gradually creeping up to 4.1% by 2024 as inflation recedes close to 2%.
Yet Jerome Powell made clear that a soft landing may depend on factors out of the Fed's control: war, supply chains and lockdowns. Stocks rebounded Wednesday as Powell held out a possibility the Fed may only hike a half-point in July, but then sold off hard the next day. The Fed wants financial conditions tight, keeping a lid on asset values, until inflation recedes in a convincing way. That will take time and may bring recession.
Economic Data Weakens
The Fed isn't convinced the economy has turned soft, but data over the past week clearly tilted to the weak side. Retail sales unexpectedly fell 0.3%, the first decline this year, while rising a worse-than-expected 0.5% excluding autos. Adjusted for inflation, these numbers would look a lot worse. Housing starts slid 14.4% to a 1.549 million annual rate, the lowest in 13 months and far worse than expected as mortgage rates soar. Regional factory gauges signaled declining activity. Weekly new jobless claims dipped 3,000 to 229,000 but are clearly trending higher after numerous weeks below 200,000.
Energy Rally Out Of Gas?
U.S. natural gas futures fell early in the week as Freeport LNG announced it doesn't expect its export terminal to recover full capacity until late 2022 after previously estimating that the early June fire would keep it out of commission for just three weeks. That means more domestic gas production will stay at home. Crude oil prices fell sharply, especially late in the week, as demand concerns finally hit the energy sector. U.S. gas and oil companies are preparing to begin the process to acquire new drilling rights on federal land for the first time since President Joe Biden took office, even as Biden blames industry leaders for soaring gasoline prices.
Tesla Raises Prices, Autopilot Tops Crash List
The EV maker notched the most crashes for a vehicle with a Level 2 advanced driver-assistance system, according to a report by the National Highway Traffic Safety Administration. Tesla vehicles were involved in 273 reported crashes, three with serious injuries and five deaths. However the company also has the most cars on the road with a Level 2 ADAS. Honda was No. 2 with 90 crashes. Meanwhile, Tesla hiked the prices of its cars by as much as $6,000 for some models in the U.S., which represents the largest increase ever for the EV maker. Tesla also raised prices for some Model Y cars in China by 5%. Shares fell sharply.
Steel Earnings Strong, Stocks Melt
Scrap recycler and steelmaker Commercial Metals said quarterly EPS jumped 151% while revenue climbed 36% to $2.52 billion, both easily beating views. Traditional steel giants Nucor, Steel Dynamics and U.S. Steel all guided higher for the current Q2 amid strong shipments and pricing. All four companies were upbeat about the future, but the stocks fell significantly amid the market sell-off and recession concerns.
Adobe Drops On Outlook
Adobe earnings grew 11% while revenue climbed 14% to $4.39 billion, both modestly topping fiscal Q2 views. But the digital media and marketing software firm guided low for the current quarter and year. Adobe cited higher taxes, foreign-exchange headwinds, and Russia's war with Ukraine as factors negatively impacting its guidance.
Oracle Earnings Top Views
The database software giant's fiscal fourth-quarter earnings were flat while revenue rose 5% to $11.8 billion, both beating forecasts. Oracle guidance was solid. Shares popped on earnings.
Contract manufacturer Jabil beat fiscal third-quarter estimates with a 32% EPS gain and a 15% revenue rise to $8.33 billion. But shares plunged.
Nio launched the premium ES7 electric SUV, the third EV that the China startup and Tesla rival plans to launch this year, while also announcing upgrades to its existing model lineup. Nio stock surged along with other China EV startups.
FedEx will raise its quarterly dividend by 53% and add three directors to its board following a push by activist investor DE Shaw. Shares jumped 14% on Tuesday.
Elon Musk held an online town hall with Twitter employees in the wake of his $54.20-a-share, $44 billion takeover deal. He said he wants the number of users to quadruple to 1 billion even as Twitter charges fees to discourage fake accounts. He hinted at Twitter layoffs. But he didn't reaffirm a commitment to buy the social site, following weeks of hinting that he wants out of the deal, or to negotiate a lower price.
