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Another Volatile Session & Economic Data

U.S. stocks closed higher on Friday, 1st July 2022, in light of pre-holiday trading. This was after the S&P posted its worst performance for the first half of any year since 1970. 

With another volatile session, a common occurrence these days, the market reacted to the movement in the bond market. The 10-yr yield fell below 3% its biggest weekly drop since March, closing at 2.88%, 25 basis points lower from a week ago. 

Several companies are lowering their profit guidance, on the back of the 40yr high inflation plus falling consumer sentiment was probably to blame for the fall in yields. Surprising to some, the market took the opportunity to see falling yields as a positive and stage a rally into the close. 

For the week, all three major market indexes posted losses, with the Dow Jones average edging 1.3% lower, the S&P sank 2.2%, and the Nasdaq fell 4.1% 

Here are the closing levels on Friday, 1st July 2022:- 

 Last Change %Change 
Dow Jones 31,097.26. +321.83. +1.05% 
S&P 500 3,825.33 +39.95. +1.06% 
Nasdaq Comp 11,127.84 +99.10. +0.90% 
U.S. 10Y 2.88%   
VIX 26.7 -1.99 -7% 

Investors are caught between the good news and the bad news. The good news may lead to a hawkish Fed, which could be bad for the market if it leads to a recession. While the bad news, may mean a less aggressive Fed and therefore avoiding a recession. 

The fall in 10-yr yields had given buyers a sense that the Fed will be less aggressive if it is priced like a possible recession is on the horizon. However, the rally on Friday could have been shorts taking some profit into the long holiday weekend. 

The economic calendar includes the factory orders report on 5th July 2022, the JOLTS job openings release on 6th July, and the employment report on 8th July.  

While the employment report will be in focus, the market will react to any data that could point to Fed decisions. 

The government’s latest payrolls tally on Friday is projected to show a 273,000 increase for June, based on the Bloomberg survey median. The unemployment rate is seen staying at 3.6%, while the average hourly earnings probably rose 5% from a year ago. 

While Friday’s rally has given the market some respite, I am not convinced that the selling is over and that the sentiment is still risk-off for now. 

Source: CBOE, Bloomberg

This commentary is written by James Gomes 
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years. 

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