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Summary

US stocks once again fell on Thursday, with the S&P 500 (SPY) on track to close the month of June almost -10% lower and on track for the worst first half in fifty-two years amid record-high inflation and heightened recession fears. The benchmark 10-year yield fell below 3.00% while the price of oil retreated to just over $105 per barrel. 

This morning, the Commerce Department reported that core personal expenditures – the Federal Reserve’s preferred measure of inflation – decelerated slightly in May but remains well above the Fed’s target. Core PCE,  the value of the goods and services purchased by people in the US, rose by 4.7% over last year compared to the 4.8% increase anticipated, according to Bloomberg data. Headline inflation, which includes energy and food price changes, also rose slightly less than expected, or at a 6.3% annual rate to match April’s pace. However, separate data showed real personal spending fell by a larger-than-expected 0.4% in May after a rise of 0.7% in April, suggesting consumers were pulling back on some spending with inflation at current levels. Here is the PCE report.

The PCE report joins a host of other reports which show that consumer sentiment in the US is souring to the worst point in decades amid elevated prices, particularly for gas and food.  The Conference Board’s latest report showed the consumer confidence index for June fell to 98.7 from 103.2 in May and below expectations of 100. The report’s expectations index, which is based on consumers’ short-term outlook for income growth, the job market, and overall business conditions, fell to 66.4, its lowest reading since March 2013.

Lynn Franco, senior director of economic indicators at The Conference Board, said “Consumer’s grimmer outlook was driven by increasing concerns about inflation, in particular rising gas and food prices. Expectations have now fallen well below a reading of 80, suggesting weaker growth in the second half of 2022 as well as growing risk of recession by year-end.” 

(Note: The working definition of a recession is two consecutive quarters of negative GDP growth, officially declared by the National Bureau of Economic Research (NBER)).

In response to elevated prices, Federal Reserve Chair Jerome Powell reaffirmed the central bank’s commitment to fighting inflation, suggesting that this aim will take priority over fully preserving activity elsewhere in the economy. During the European Central Bank’s annual economic policy meeting, Powell said “Is there a risk we would go too far [regarding interest rate hikes]. The bigger mistake to make – let’s put it that way – would be to fail to restore price stability.” Earlier in the month, Powell suggested either a 50 or 75 basis point interest rate hike would most likely be on the table following the Fed’s July meeting. And in the weeks since, a number of other key central bank officials have affirmed this stance. In my opinion, I think we will see another 75 basis point hike. 

Amid the myriad concerns facing markets as of late, stocks are on track to close out the worst first half of a year in 52 years. Based on Thursday closing prices, the S&P 500 is set to post a 19.9% decline for the first six months of the year — its worst performance since 1970. For the month of June alone, the index is on track to slide by almost 10%.

Highlights

  • Bed Bath & Beyond (BBBY) shares extended losses after a more than 23% decline in the stock on Wednesday. The retailer reported same-store sales that sank more than 20% in the most recent quarter, and also announced CEO Mark Tritton would be leaving the company and the board, effective immediately, and that board member Sue Gove would take over on an interim basis.
  • Shares of Restoration Hardware (RH) fell over -10% after the company slashed its full-year outlook to forecast a revenue decline, citing “the deteriorating macro-economic environment” and lower-than-expected demand. RH now sees revenue falling between 2% and 5% this year, versus a prior outlook for sales to come in flat to up 2%.
  • Apple Inc. is no longer importing gold and tungsten from Russia, the company has confirmed to MarketWatch.
  • The Cyberspace Administration of China (CAC) sought public feedback on draft rules governing the transfer of personal data overseas, Reuters reports. Under the draft rules, companies collecting personal data would be responsible for the legality, legitimacy, the need for the data, scope, and security of overseas transfers.
  • China’s slowing economy and an inflation-driven drop in consumer spending are expected to drag down global shipments of computers and smartphones this year, according to research firm Gartner.
  • Short-seller Grizzly Research accused Chinese EV company NIO of fraudulent accounting and “using an unconsolidated related party to exaggerate revenue and profitability.” Here is NIO’s response refuting the report, calling it “ without merit and contains numerous errors, unsupported speculations and misleading conclusions and interpretations.”
  • Snapchat on Wednesday confirmed it’s debuting a new subscription product called Snapchat+, “a collection of exclusive, experimental, and pre-release features” for $3.99 monthly.

“Keep smiling, because life is a beautiful thing and there’s so much to smile about.” –Marilyn Monroe