U.S. Stock markets closed sharply lower on Friday, 10th June 2022, after U.S. inflation hit a 40-year high and consumer sentiment fell to a record low.
Labour Department data on Friday showed the consumer price index rose 1% from April and 8.6% from a year ago. Core CPI which is ex-food and energy rose 0.6% from a month ago and 6% from last year. All these numbers were higher than forecast.
Separately, the University of Michigan’s preliminary June sentiment index fell to 50.2 from 58.4 in May, data released Friday showed. The median estimate was 58.1.
The data is leading the market to expect a more hawkish Fed with some calling for a 75 basis point hike at the next meeting. While highly unlikely, the sentiment is that the Fed will need to step up its course to reign in this stubbornly high inflation.
For the week the S&P fell 2.9%, the second-worst week of the year, and the 9th weekly drop in 10 weeks.
The two-year yield jumped over 3% the highest since 2008. The 2 years tracks closely to the Fed Funds rate expectations.
Here are the closing levels on Friday, 10th June 2022:-
It should be apparent that inflation is not going away anytime soon. In fact, there are arguments that the Fed is so far behind that it needs to do more just to catch up let alone get ahead of it.
Traders are now pricing in three 50 basis point hikes at the next three meetings. Some are pricing in 75 basis points at one of these meetings.
Tech stocks bore the brunt of the selling, as I have pointed out many times, higher rates affect tech stock valuations.
The S&P is now a whisker away from the bear market territory. What we have not seen is limit down days, which typically happens when markets are vulnerable.
Unfortunately, we probably need limit down days before we can call an end to this negative sentiment otherwise, we could just drift lower week after week in a slow and painful manner.
We could probably also see days of optimism like we have recently, but until inflation comes down, these up days will be met with sellers.
Continue to prepare for more volatile days ahead.
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.
Trading in financial instruments involves high risks due to the fluctuation in the value and prices of the underlying financial instruments. Due to the adverse and unpredictable market movements, large losses exceeding the investor’s initial investment could incur within a short period of time. The past performance of a financial instrument is not an indication of its future performance. Investments in certain services should be made on margin or leverage, where relatively small movements in trading prices may have a disproportionately large impact on the client’s investment and the client should therefore be prepared to suffer significant losses when using such trading facilities.
Please make sure you read and fully understand the trading risks of the respective financial instrument before engaging in any transaction with Doo Prime’s trading platforms. You should seek independent professional advice if you do not understand any of the risks disclosed by us herein or any risk associated with the trade and investment of financial instruments. Please refer to Doo Prime’s Client Agreement and Risk Disclosure Statement to find out more.
This information is addressed to the general public solely for information purposes and should not be taken as investment advice, recommendation, offer, or solicitation to buy or sell any financial instrument. The information displayed herein has been prepared without any reference or consideration to any particular recipient’s investment objectives or financial situation. Any references to the past performance of a financial instrument, index, or a packaged investment product shall not be taken as a reliable indicator of its future performance. Doo Prime and its holding company, affiliates, subsidiaries, associated companies, partners, and their respective employees, as well as managers, make no representation or warranties to the information displayed and Doo Prime and its holding company, affiliates, subsidiaries, associated companies, partners and their respective employees, as well as managers, shall not be liable for any direct, indirect, special or consequential loss or damages incurred a result of any inaccuracies or incompleteness of the information provided. Doo Prime and its holding company, affiliates, subsidiaries, associated companies, partners, and their respective employees, as well as managers, shall not be liable for any direct, indirect, special, or consequential loss or damages incurred as a result of any direct or indirect trading risks, profit, or loss arising from any individual’s or client’s investment.