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Slowdown In Hiring & Recession Fears

U.S. stocks closed lower on Friday, 22nd July 2022, ending a 3-day winning streak after weak economic data and poor results from Snap and Twitter. 

The tech giants, Apple, Microsoft, and Google indicated a slowdown in job hiring weighed heavy on the markets. Through this, the Nasdaq lead the fall, down 1.87%. 

Ahead of their earnings, the slowdown in hiring may mean that there is a potential for these companies to lower their forward guidance. 

The 10year Yields see a sharp fall, down to 2.75%, indicating a less hawkish Fed, and it is also suggesting a potential recession in the coming months. This is evident in the widening of the 2s/10s yield spread. 

Regardless, the markets still posted strong gains for the week, with the Dow up 1.92%, the S&P up 2.55% while the Nasdaq was sharply higher by 3.3%. 

Here are the closing levels on Friday, 22nd July 2022:- 

 Last Change %Change 
Dow Jones 31,899.29. -137.61. -0.43% 
S&P 500 3,961.63 -37.32. -0.93% 
Nasdaq Comp 11,834.11 -225.50. -1.87% 
US 10Y 2.75%   
VIX 23.03 -0.08 -0.35% 

The battle is still on between recession fears and soft landing. 

There is little doubt in people’s minds that the Fed will raise rates by 75 basis points at the coming meeting next week. However, a Bloomberg survey sees the Feds slowing down after this July increase.  

This is where the market gets pulled in 2 directions. 

If the Feds slows down its rate increases, then it should be good, as low interest rates are better for the economy. Plus, it has a better chance of avoiding a recession.  

The markets like this, and it will go up. 

On the other hand, the slowing down of the Fed may be because the economy is weak and that a recession is unavoidable. Then, the markets should go down. 

But as we have seen in recent weeks, the market wants to go higher and look on the positive side of any news.  

Will the bulls be able to hold off the selling if the earnings and forward guidance of mega-companies are weaker than expected?  

In addition, stock prices will suffer if companies cannot earn as much and as reported. That said, this was one of the reasons for Friday’s selling. 

Ultimately, it’s going to be another volatile week with the Fed’s meeting and earnings announcements.

So, once again, caution is advised.  

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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