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Markets Today 

  • S&P 500 (SPY): -3.80%
  • Nasdaq (QQQ): -4.70%
  • Dow Jones (DIA): -2.80%
  • Russell 2000 (IWM): -4.70%
  • Volatility Index (VIX): +22.59%
  • Apple (AAPL): -3.83%
  • Tesla (TSLA): -7.10%
  • NVIDIA (NVDA): -7.82%
  • Bank of America (BAC): -3.47%
  • Occidental Petroleum (OXY): -6.33%
  • Spirit Airlines (-4.67%)
  • MicroStrategy (MSTR): -25.13%
  • Coinbase (COIN): -11.41%

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Summary

The meltdown in US stocks continued as market participants bet that the recent decades-high print on inflation will force the Federal Reserve to get even more aggressive than originally expected in order to temper runaway inflation. The S&P 500 (SPY) officially entered a bear market after falling more than -20% from recent highs while the tech-heavy Nasdaq (QQQ) fell -4.7% on the day to the lowest level since September 2020. The yield curve inverted, with the benchmark 10-year yield jumping to 3.34%, the highest level since 2011. 

Cryptocurrencies also slid across the board after Celsius, one of the largest crypto platforms, said it was pausing all withdrawal, swaps, and transfers between accounts on its platform “due to extreme market conditions.” The price of Bitcoin (BTC) fell roughly 17% to $23,000 at session lows, the lowest level since December 2020. Crypto-related stocks like MicroStrategy (MSTR) and Coinbase (COIN) were hammered in the sell-off. 

Last week,  the Bureau of Labor Statistics’ May consumer price index showed prices rose 8.6% year-over-year, accelerating from the already elevated 8.3% recorded in April and higher than the 8.3% expected by economists. By far, the biggest contributors to the latest jump in inflation were shelter, energy (specifically gasoline), and food prices. For context, the energy index rose 3.9% month-over-month while the gasoline index rose 4.1%. Compared to one year ago, the price of energy is 34.6% higher, the largest year-over-year rise since September 2005.

Mike Loewengard, managing director of investment strategy at E*Trade said “A higher-than-expected CPI number seals the deal on investors’ fears. And though consumers may be experiencing high prices in their day-to-day lives, especially at the pump, it’s disappointing to see that we don’t have a lid on inflation yet, despite the Fed’s efforts.”

The Fed funds futures, which can help track predictions for where the Fed’s target interest rate will land shifted quickly following the CPI report. As of Monday, Fed funds futures point to a 75bps hike as almost certain in light of the fastest pace of inflation in forty years, according to CME Group data. 

Michael Pearce, senior US economist at Capital Economics wrote in a note to clients, “There is very little in the details of [Friday’s CPI] report to suggest that inflationary pressures are easing. The surge in energy prices this month means that headline inflation will remain close to 8.6% in June. Together with the continued strength of the latest activity data, that bolsters the argument of the hawks at the Fed to continue the series of 50 bp [basis point] rate hikes into September and beyond, or even to step up the size of rate hikes at coming meetings.”

Raising the interest rate would add more pressure to already beaten down equities by raising the cost of borrowing. While raising interest rates may bring short-term pain, letting decades-high inflation run uncheck could lead the US into a deep, multiyear recession.   Already, at least one survey conducted by the University of Michigan has shown consumer sentiment plunged to its lowest level since at least the 1970s in the face of rising prices.

Highlights

  • Oracle Corp topped Wall Street estimates for fourth-quarter revenue on Monday. Revenue for the quarter ended May 31 was $11.84 billion, compared with analysts’ average estimate of $11.66 billion
  • General Motors Co Chief Executive Mary Barra said on Monday the automaker is “selling every truck we can build” and expanding North American truck-building capacity, even as U.S. gasoline prices hit record highs.
  • Amazon reportedly had issues with error messages and products refusing to load for a few hours this afternoon.
  • Apple’s (AAPL) revenue from gaming and music offerings is estimated to jump 36% to $8.2 billion by 2025, JP Morgan said, as the iPhone maker taps its vast user base to drive its subscription services.
  • Walt Disney (DIS) paid $3 billion for the television rights to the Indian Premier League cricket league, despite earlier reservation by CEO Bob Chapek. 
  • Bank of America Corp’s Chief Financial Officer Alastair Borthwick said on Monday that there is no sign of recession in the bank’s loan portfolio, which remains on a healthy trajectory. “There’s this question of what will happen in the future, and there’s what we are seeing right now. And what we’re seeing right now, credit is in great shape,” Borthwick said at a conference hosted by Morgan Stanley, when asked about asset quality. He added that sectors like travel and restaurants are still seeing credit quality improvements.
  • Netflix (NFLX) confirmed the massively successful Squid Game was greenlit for a second season by sharing a teaser trailer on Twitter. 

“A gem cannot be polished without friction, nor a person perfected without trials. – Seneca.