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Markets Today 

  • S&P 500 (SPY): -0.31%
  • Nasdaq (QQQ): +0.25%
  • Dow Jones (DIA): -.40%
  • Russell 2000 (IWM): -0.40%
  • Volatility Index (VIX): -5.17%
  • Apple (AAPL): +0.74%
  • Tesla (TSLA): +2.44%
  • NVIDIA (NVDA): +1.26%
  • Occidental Petroleum (OXY): +3.79%
  • Bank of America (BAC): -1.69%
  • FedEx (FDX): +14.41%
  • Nio (NIO): +16.64%
  • Antero Resources (AR): -10.68%
  • Digital World Acquisition (DWAC): -27.55%

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Summary

US stocks fell once again following the release of the Producer Price Index (PPI) the day after the S&P 500 (SPY) officially entered bear market territory. Stocks  fluctuated between gains and losses throughout most of Tuesday’s session before plunging in the last hour to fall to the lowest level since January 2021. 

The benchmark 10-year Treasury yield hit 3.5%, the highest level since 2011 while the sensitive two-year yield rose to 3.4%, the highest level since 2007. Oil prices were on the move again, with the WTI crude oil futures breaking back over $122 per barrel.

The producer price index, which measures prices paid to producers of goods and services rose 0.8% in the last month to hit a staggering 10.8% year-over-year. The monthly rise was in line with Dow Jones estimates and a doubling of the 0.4% pace in April. The “core PPI”, which excludes volatile food, energy, and trade prices, rose 0.5% month-over-month to hit 6.8% year-over-year. The two PPI measures remained near their historic highs — 11.5% for headline, and 7.1% for core, both hit in March.

The data is significant in that prices at the wholesale level feed through to consumer prices, which are running at their highest levels since December 1981. The consumer price index increased 8.6% annually in May, defying hopes that inflation had peaked in the spring.

The biggest contributor to the jump in PPI was energy. Wholesale gasoline prices rebounded 8.4% after falling 3.0% in April, making up 40% of the rise in the costs of goods. Jet fuel increased 12% after shooting up 14.8% in April. There were also increases in the cost of residential natural gas, steel mill products and diesel fuel.

The services index advanced 0.4%, with transportation and warehousing services responsible for more than half the gain. The increases were softened by declines in fuels and lubricants, portfolio management and guest room rentals.

Chris Rupkey, chief economist at FWDBONDS, said “Producer price increases continue to shoot higher which means even more pipeline pressures for the consumer in the months to come. This argues for a strong response from Fed officials to somehow get out in front of market expectations and tell the public they are winning the inflation fight.”

The recent CPI and PPI numbers greatly increase the likelihood that the Federal Reserve will have to surprise the market with a larger than expected rate increase in order to fight rising prices. As it stands,  Market participants expect the Federal Open Market Committee (FOMC) will raise interest rates by 75 basis points this week, with CME Group data showing Tuesday morning that traders were pricing in a more than 90% probability of such an outcome. The FOMC begins its two-day policy-setting meeting on Tuesday, with a decision and press conference from Federal Reserve Chair Jerome Powell set for Wednesday.

Expectations for a larger-than-expected interest rate hiked also soared after the Wall Street Journal reported Monday that a 75 basis point hike was being considered by the Fed. Paul Ashworth, chief US economist at Capital Economics, said “The Fed’s previous plan to hike by 50bps at the meetings in June and July and then revert to 25bps increases in the fall was always dependent on inflation showing signs of cooling. Instead, the monthly gains in core CPI accelerated back to 0.6% in both April and May, suggesting that price pressures are broadening. 

Highlights

  • Shares of FedEx (FDX) jumped by as much as 15% after the company announced it was raising its quarterly dividend by 53% and announced it would tie executive compensation with shareholder returns. 
  • Shares of Oracle (ORCL) rose more than 10% intraday after reporting earnings estimates that beat analyst expectations
  • Twitter (TWTR) staff is reportedly set to hear from Elon Musk for the first time this week since announcing his plan to acquire the company for $44 billion. 
  • Compass (COMP) and RedFin Corporation (RDFN) each announced layoffs on Tuesday as slowing housing market activity hit major real estate firms. Compass said it will lay off about 10% of its workforce, or about 450 positions, while RedFin said it had asked 8% of its employees to leave the company.
  • Coca-Cola (KO) announced it was delaying its plan for the IPO of Coca-Cola Beverages Africa in the Johannesburg stock exchange due to present market uncertainty.
  • The government will soon release data on collisions involving vehicles with autonomous or partially automated driving systems that will likely single out Tesla for a disproportionately high number of such crashes. The National Highway Traffic Safety Administration plans to issue figures it has been gathering for nearly a year. The agency said in a separate report last week that it had documented more than 200 crashes involving Teslas that were using Autopilot, “Full Self-Driving,” Traffic-Aware Cruise Control or some other of the company’s partially automated systems.
  • Apple (AAPL) signed a 10-year deal to secure streaming rights to every Major League Soccer (MLS) match starting in 2023. Apple said that “a broad selection” of matches will also be offered at no additional cost to Apple TV+ subscribers, with a limited number of matches offered free. 
  • Meta Platforms won its appeal on Tuesday against Britain blocking its 2020 acquisition of GIFs supplier Giphy on one ground, the country’s Competition Appeal Tribunal (CAT) ruled.
  • Ford Motors (F) recalls 49,000 Mustang Mach-E electric vehicles because a part could overheat and result in a loss of driving power.

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