Dow down more than 500 points as brutal first half comes to close

US stocks opened sharply lower on Thursday following the release of closelywatched inflation data, while Wall Street was headed for its worst first half of the year in more than 50 years.

How are stock-index futures trading?
  • The S&P 500 dropped 72 points, or 1.9%, to 3,746.

  • The Dow Jones Industrial Average fell 509 points, or 1.6%, to 30,519.

  • Nasdaq Composite slumped 296 points, or 2.7%, to 10,881.

On Wednesday, the Dow Jones Industrial Average DJIA,
rose 82 points, or 0.3% to end at 31,029.31. The S&P 500 SPX,
lost 0.1% to 3,818.83. The Nasdaq Composite COMP,
lost less than 0.1%, closing at 11,177.89.

The action on Wednesday was choppy, leaving the CBOE Volatility Index VIX,
+ 4.90%
– a gauge of expected equity market volatility – elevated at 28.2, compared to its long run average around 20. By mid-morning on Thursday, the volatility index had climbed to 29.4, nearing the psychologically important 30 level.

What’s driving the markets?

US stocks traded lower after a key gauge of US inflation rose 0.6% in May largely due to the higher cost of gas and food, though there were signs that price pressures were starting to ease.

The rise in the so-called personal-consumption price index was triple the 0.2% gain in April. But a narrower measure of inflation that omits volatile food and energy costs, known as the core PCE, rose by a relatively modest 0.3% for the fourth month in a row – below Wall Street’s 0.4% forecast.

Meanwhile, real disposable income has remained essentially flat since January as the rising cost of living has absorbed all of the increased spending power from rising wages and more jobs.

“Americans are running faster just to stay even. No wonder consumer confidence is in the pits, ”said Bill Adams, chief economist for Comerica Bank.

Federal Reserve Chairman Jerome Powell said Wednesday he saw a path back to 2% inflation, but warned there was “no guarantee that we can do that” while sustaining a strong labor market. The PCE measure is the Fed’s preferred inflation gauge.

The S&P 500 was on course to take its losses for 2022 to more than 20%. Since peaking near 4,800 in early January, the US benchmark stock index has crumpled, amid investor fears that surging inflation is battering consumer confidence and damaging the global economy.

Read: What’s next for the stock market after the worst 1st half since 1970? Here’s the history.

Sentiment has also been hit by Russia’s invasion of Ukraine, a move that has heightened geopolitical anxiety and contributed to sharply rising energy and food prices.

In previous recent episodes of market tantrums, such as the 2020 COVID-19 sell-off, investors could look to central banks for success. But with inflation in most major economies at their highest level in many decades, monetary guardians like the Federal Reserve are stressing their commitment to tighten policy to dampen price pressures. Even if that means hurting growth and, consequently, corporate profits.

“I do not envision equities recovering until the US rates market is pricing more meaningful cuts from the Fed,” said Stephen Innes, managing partner at SPI Asset Management, in a note to clients.

“Implied Fed pricing has declined over the last few weeks – from a peak of 4% to more like 3.50%. But that is a ton of rate hike risk for the market to digest, ”he said.

Initial jobless claims fell 2,000 to 231,000 in the week ended June 25, the Labor Department said Thursday. Economists polled by The Wall Street Journal had estimated new claims would inch up to 230,000 from last week’s initial estimate of 229,000.

Read: These 10 stocks in the S&P 500 have lost $ 4.1 trillion of investors’ money during the first half of 2022

The yield on the US 10-year Treasury TMUBMUSD10Y,
was down 7.7 basis points to 3,024%, reflecting a move into perceived havens. Deteriorating risk appetite has pushed bitcoin BTCUSD,
back below $ 20,000 on Thursday.

Adding to trader anxiety is the second quarter company earnings season, which will kick into gear in the next few weeks. Recent reports from consumer-facing companies – such as Bed Bath & Beyond BBBY,
+ 1.20%
– have been poorly received.

Other markets
  • Better news emerged from Asia, where a survey of China’s manufacturing sector registered expansion for the first time since March after COVID-19 restrictions were eased. The Shanghai Composite CN: SHCOMP rallied 1.1% in response.

  • The mood in Europe was cautious as well, with the STOXX 600 XX: SXXP, a benchmark index of companies in the euro area, down more than 2%, while the FTSE 100 UK: UKX, an index of the leading UK companies, was down 0.2%.

  • Gold GC00,
    was down 0.1%, while the ICE US Dollar Index DXY,
    was essentially flat at 105, jut shy of its strongest level in 20 years.

Single stock movers
  • 29 out of 30 Dow stocks were trading lower on Thursday, with Travelers Companies TRV,
    + 0.81%Inc.
    just barely clinging to gains, while Salesforce Inc. CRM,
    Walgreens Boots Alliance WBA,
    Boeing Company BA,
    and Goldman Sachs Group GS,
    were the worst performers.

  • Norwegian Cruise Line NCLH,
    Carnival Corp. CCL,
    and Royal Caribbean Cruises RCL,
    were among the worst performers on the S&P 500.

  • Utilities like Constellation Energy Corp. CEG,
    + 1.05%
    were among the S&P 500’s best performers, with Constellation up nearly 2%.

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