U.S. stocks are extending weekly gains, rebounding from yesterday afternoon's slide as the markets remain choppy amid lingering global recession concerns that have been bolstered by monetary policy tightening efforts around the globe aimed at getting high inflation under control. The markets have showed some resiliency this week and appear to be taking in stride Jerome Powell's second day of Congressional testimony in which he continues to signal further aggressive action is in the offing to restore price stability. The economic calendar showed jobless claims moderated but still above recent lows, and June business activity posted the weakest growth since January. Treasuries are trading higher with yields continuing to fall, and the U.S. dollar is rebounding from this week's decline. Crude oil prices are lower and gold is trading higher. In equity news, KB Home topped earnings estimates, while Darden Restaurants issued a mixed outlook, and Accenture offered disappointing guidance. Asia finished mostly higher and Europe is lower, with the global markets grappling with the recession concerns and digesting manufacturing and services sector reports around the world.
At 10:58 a.m. ET, the Dow Jones Industrial Average is up 0.6%, the S&P 500 is gaining 0.8%, and the Nasdaq Composite is advancing 1.4%. WTI crude oil is declining $0.51 to $105.68 per barrel, and Brent crude oil is dropping $1.36 at $107.29 per barrel. The gold spot price is rising $4.40 to $1,842.80 per ounce, and the Dollar Index is increasing 0.2% to 104.35.
Volatility in the equity markets remains after yesterday's failed attempt to extend Tuesday's gains, with the the S&P 500, NASDAQ and Russell 2000 continuing to trade in bear market territory. Inflation continues to be the chief concern for the Fed, forcing the Central Bank to get more aggressive with its monetary policy and last week it raised the target for the fed funds rate by 75 basis points (bps) and suggested more hikes of that magnitude could come as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her article, Fed Goes for Inflation's Jugular With 75bps Rate Hike. Liz Ann examines the rate hike and how the Fed vowed to forcefully tackle inflation, while conceding the path to a soft landing has become "more challenging." Recession chatter has picked up as a result, contributing to the market volatility.
Amid this market backdrop, Liz Ann notes in her article, Panic Is Not a Strategy—Nor Is Greed, how disciplined investing helps investors navigate through volatile environments.
In equity news, KB Home (KBH $29) reported fiscal Q2 earnings-per-share (EPS) of $2.32, above the $2.04 FactSet estimate, as revenues grew 19.0% year-over-year (y/y) to $1.7 billion, roughly in line with the Street's forecast. The homebuilder's Q2 deliveries came in above expectations, while its orders were below forecasts. The company said with its ending backlog of over $6.0 billion, it is reaffirming its 2022 guidance, which it believes it is well positioned to achieve. However, its Q3 revenue outlook came in south of expectations. KBH added that sales rates are moderating from the exceptional levels the industry has experienced, as buyers process the impact of higher mortgage interest rates, as well as inflationary pressures. Shares are trading nicely higher.
Accenture Plc. (ACN $282) posted fiscal Q3 EPS of $2.79, including a $0.15 per share charge related to the disposition of its business in Russia, making it unclear if the result is comparable to the Street's forecast of $2.86. Revenues rose 22.0% y/y to $16.2 billion, just above the expected $16.0 billion. The global professional services company's new bookings rose 10.0% y/y to $17.0 billion. ACN issued Q4 revenue guidance that was below estimates, citing a negative impact from foreign exchange, while lowering the high end of its full-year earnings outlook. The company also lowered its forecast for current-year revenue growth. Shares are seeing pressure.
Darden Restaurants Inc. (DRI $115) reported fiscal Q4 earnings of $2.24 per share, above the expected $2.21, with revenues rising 14.2% y/y to $2.6 billion, north of the forecasted $2.5 billion. The parent of Olive Garden said its Q4 same-store sales grew 11.7% y/y, exceeding the expected 9.2% gain. DRI increased its quarterly dividend by 10.0% to $1.21 per share and announced a new share repurchase program by up to $1.0 billion. The company issued EPS guidance for its current fiscal year that missed expectations, but its sales outlook was modestly above estimates. Shares are dipping.
Jobless claims higher than expected, June business activity slows more than expected
Weekly initial jobless claims (chart) came in at a level of 229,000 for the week ended June 18, versus the Bloomberg consensus estimate calling for 226,000, and versus the prior week's upwardly-revised 231,000 level. The four-week moving average rose by 4,500 to 223,500, and continuing claims for the week ended June 11 increased 5,000 to 1,315,000, versus estimates of 1,320,000. The four-week moving average of continuing claims declined by 7,000 to 1,310,000.
The preliminary S&P Global U.S. Manufacturing PMI Index for June declined to 52.4 from May's unrevised 57.0 figure, and versus estimates of a slight decrease to 56.0. The preliminary S&P Global U.S. Services PMI Index showed growth for the key U.S. sector in June also slowed more than expected to 51.6, compared to expectations of a dip to 53.3 from May's 53.4 figure. However, growth remained as readings above 50 for both indexes denote expansion.
S&P Global said June was the weakest upturn in U.S. private sector output since January's Omicron-induced slowdown. The report said slower service sector output was accompanied by the first contraction in manufacturing production in two years.
In other manufacturing news, the June Kansas City Fed Manufacturing Activity Index slowed by a smaller amount than expected and remained in expansion (a reading above zero). The index decreased to 12 from May's unrevised 23 reading, compared to forecasts calling for a decline to 10.
Treasuries are rising with yields losing ground as concerns continue to climb regarding a recession amid the backdrop of an aggressive Fed to try to combat persistent inflation. The markets also continue to digest yesterday's Congressional testimony from Fed Chairman Jerome Powell who stated restoring price stability is the Fed's number one priority and that ongoing rate hikes will be appropriate to achieve that. Powell did note that the economy is very strong and well positioned to handle tighter monetary policy. He added that the labor market is "extremely tight" and the Fed's tightening measures are aimed at job market balance, while saying the tightening of financial conditions seen in recent months should continue to temper growth and help bring demand into better balance with supply. He did concede that rate hikes could provoke a recession, and a soft landing will be "very challenging" given the global climate. Powell is concluding his two-day testimony this morning and although his prepared remarks did not differ, the subsequent Q&A session is being closely followed.
For more on the Fed's actions check out our latest WashingtonWISE podcast, Fed Gets Aggressive: What's It Mean for Investors?, featuring Schwab's Chief Fixed Income Strategist Kathy Jones.
The yield on the 2-year Treasury note is down 11 bps to 2.94%, the yield on the 10-year note is declining 13 bps to 3.03%, and the 30-year bond is decreasing 8 bps to 3.17%.
Europe lower as choppiness remains
European equities are lower in late-day trading, with volatility remaining as global uneasiness persists about a potential worldwide recession that has been fueled by central bank monetary policy tightening. Inflation has persisted and forced central banks to tighten policies to try to cool off pricing pressures and yesterday, Fed Chairman Jerome Powell signaled continued aggressive actions in the coming meetings. The markets will likely pay close attention to Powell's second day of Congressional testimony later today. Given this environment, check out Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, Recession: The Risk Is in the Reversal, where he discusses how investors often notice the overall direction of markets and how missed changes in asset classes under the surface could see a shark attack take a big bite out of unprepared portfolios. You can follow Jeff on Twitter: @JeffreyKleintop. A host of June Manufacturing and Services PMIs were digested, with Eurozone manufacturing and services growth both slowing more than expected. Meanwhile, U.K. manufacturing growth slowed more than anticipated, though its services sector output came in at a stronger pace of growth than anticipated. The euro trading lower versus the U.S. dollar, while the British pound is little changed, and bond yields in the Eurozone and the U.K. are losing solid ground.
The U.K. FTSE 100 Index is down 0.7%, Germany's DAX Index is dropping 1.3%, France's CAC-40 Index and Italy's FTSE MIB Index are declining 0.4%, Spain's IBEX 35 Index is decreasing 0.3%, and Switzerland's Swiss Market Index is trading 0.8% lower.
Asia mostly higher as markets digest Fed comments, reports of further China support
Stocks in Asia finished mostly higher, showing some resiliency in the face of festering global recession concerns and as the markets digested commentary from Fed Chairman Powell who suggested the Central Bank will remain aggressive to try to restore price stability. However, the sharp drop in oil prices yesterday weighed on the energy sector and limited gains in the region. The markets also sifted through some key June business activity reports, while CNBC reported that China may be set to step up macroeconomic policies to deliver on its economic and social development goals and minimize the impact of COVID-19. Schwab's Jeffrey Kleintop discusses in his article, Recession in China?, how China's economy and consumer market has likely slipped into a recession, at least by China's standards. Jeff takes a look at the short-term and long-term impacts of any extended disruption of the lockdowns on consumer spending and business output. In economic news, Japan's manufacturing growth decelerated in June though its services sector output grew at an accelerated pace. Additionally, Japan's May department store sales accelerated sharply. Elsewhere, Australia's June services sector growth slowed slightly while its manufacturing growth ticked higher.
Japan's Nikkei 225 Index ticked 0.1% higher, with the yen trimming this week's losses that have come from a recent plunge versus the U.S. dollar. China's Shanghai Composite Index rallied 1.6%, and the Hong Kong Hang Seng Index gained 1.3%. Australia's S&P/ASX 200 Index advanced 0.3%, and India's S&P BSE Sensex 30 Index traded 0.9% to the upside. South Korea's Kospi Index bucked the trend, dropping 1.2%.
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