Stocks Extend 3-day Slump and Look Beyond Labor Market Strength

Barry Adams
30 Aug, 2022
New York City

U.S. stocks extend losses for the third day in a row after rate hike worries dominated trading sentiment. 

Investors ignored the the latest read on jobs front showing healthy and stable labor market conditions and consumer sentiment also improved according to a private survey. 

However, economists are increasingly factoring a stagflation scenario for the U.S. economy in 2023 as rates rise and are expected to stay higher for a longer duration. 

Bond yields rose as investors recalibrated from soft landing to stagflation scenario after the latest comments from the Fed Chairman raised the prospects of fed funds staying above the 4.5% level and holding longer than two quarters in a row.  

The S&P 500 index fell 1.1% to 3,986.16 and the Nasdaq Composite index declined 1.1% to 11,883.13. 

Corporate stock buyback activity is likely to pick up in the remainder of the year ahead of the imposition of the 1% tax next year as approved in the Inflation Reduction Act. 

Weekly stock buybacks surged to the highest level in the last week since January,  Savita Subramanian of Bank of America wrote in a research note. 

The bond yields edged lower after rising for two days following the tough talks from central bankers in the U.S. and Europe. 

The yield on 10-year treasury notes inched higher to 3.104% and 2-year notes edged up, to a record high not seen since 2007, to 3.466%. 

Energy prices edged down on the worries that the demand for crude oil may decline and the current tight supply and demand conditions are likely to change if the global economic slowdown persists. 

Moreover, Iraq controlled Somo confirmed that oil exports are unaffected by the ongoing civil unrest after a powerful cleric withdrew from politics. 

At least 20 people killed and more than 250 were injured in one of the deadliest violence in Baghdad in years. 

Futures of crude oil declined $4.60 to $92.42 a barrel and natural gas decreased 30 cents to $9.08 a British thermal unit. 

Job openings in the U.S. rose after falling for three months in a row., the Bureau of Labor Statistics said Tuesday. 

The number of job openings rose 199,000 to 11.2 million in July driven by the new postings in logistics, entertainment and recreation and governments at all levels. 

Stocks lacked direction in trading today and traders reacted to the latest corporate news. 

Energy complex and resource stocks led the decliners after crude oil and natural gas prices eased. 

CF Industries, Freeport-McMoRan, Mosaic, Marathon Oil, Diamondback led the decliners with a loss between 5% and 7%. 

PPG Industries, Best Buy, Masco, Sherwin Williams and Corning Inc led the gainers of the day. 

Baidu Inc declined 6.4% to $137.81 and the China-based search engine operator reported better-than-expected results and said ad demand is recovering. 

Bed Bath & Beyond declined 2.5% to $13.01 after surging 12% earlier in the day and following a 25% jump in the previous session. 

The troubled retailer is scheduled to release its company strategy including its options to arrange more financing.  

Best Buy rose 3.1% to $75.90 after the electronic retailer posted better-than-anticipated quarterly results. 

The retailer said total revenues declined to $10.3 billion from $11.9 billion a year ago. 

Second quarter net income dropped to $306 million or $1.35 a share from $734 million or $2.90 a share a year ago. 

The retailer guided full-year comparable sales to decline "slightly more than the 12.1% decline reported in the second quarter."

Big Lots Inc increased 5.2% to $22.69 after the discount retailer posted a smaller-than-expected quarterly loss. 

Net sales in the second quarter declined 7.6% to $1.35 billion driven by comparable sales decline of 9.2%. 

The retailer swung to a loss of $84.2 million or $2.90 a share compared to a profit of $37.7 million or $1.09 a share a year ago. 

The retailer plans to increase its promotion activities to clear unwanted inventories and anticipates gross margin to return in the fourth quarter matching the previous year. 

First Solar Inc increased 1.2% to $123.20 after the solar equipment manufacturer said it reversed its earlier decision and now plans to expand its U.S. manufacturing including a new plant in the southeast after the passage of the Inflation Reduction Act.  

Lucid Group fell 6.8% to $15.07 after the maker of electric vehicles filed a shelf offering to raise as much as $8 billion over the next three years. The company said it has no plans to raise capital soon. 

Peloton Interactive declined 4% to $10.04 after the maker of fitness equipment said it needs more time to finalize its annual report as the company struggles with its restructuring plan. 

Twitter Inc declined 1.05% to $39.59 after Elon Musk filed a second notice with the SEC for his reasons to terminate the $44 billion deal to acquire the company in early July. 

 

Eurozone Confidence Drops, Record High German Inflation 

European benchmark indexes closed mixed as investors prepare for higher rates. 

Investors were on the defensive after several central bankers mounted a concerted campaign in support of higher rates at the next policy meeting on September 8. 

On the economic front, Germany's annual inflation rose to 7.9% in August, after easing in the previous two months, the preliminary data released by the Destatis on Tuesday. 

The consumer price index rose at a faster pace than 7.5% in July matching the record high in May, and strongest since the winter of 1973 and 1974. 

Food prices rose 16.% from 14.8% in the previous month and energy prices remained elevated at 35.6% from 35.7% in the previous month. 

The German government is expected to release a new energy relied package in a few days as the current support for public transportation is set to expire at the end of August 

Eurozone economic confidence declined more than expected in August, the European Commission reported on Tuesday. 

The economic sentiment index declined more than expected to 97.6 in August from 98.9 in the previous month. 

The DAX index increased 0.5% to 12,961.14, the CAC-40 fell 0.2% to 6,210.52, and the FTSE 100 index dropped 0.9% to 7,361.61. 

Banks led the gainers in the region as rising rates are generally beneficials to banks and financial lenders. 

Deutsche Bank, Commerzbank. Credit Agricole and HSBC rose between 2% and 3%. 

Adevinta SA surged 16..1% to 8.01 euros after the world's largest classified advertising company reported strong second quarter results. 

The Oslo, Norway-based classified advertising company said second quarter revenues rose 8% to 417 million euros and underlying operating earnings increased 8% to $153 million euros. 

Online classified revenues increased 11% from a year ago driven by double digit revenue increase in employment and automotive ad revenues. 

The company also appointed Antoine Jouteau as its new chief executive as of  August 15, 2022. 

Aker Solutions ASA increased 8% to 3.94 euros after the company announced its plan to form a joint venture with Schlumberger for subsea engineering projects. 

AstraZeneca Plc declined 1.9% to 11,145.75 pence and the company won a regulatory approval for its Evusheld COVID-19 treatment in Japan. 

Uniper SE declined 1.6% to 5.50 euros after the German utility company said it has asked for more financial help from the German government. 

Bunzl plc declined 5.9% to 2,930.84 pence after the distribution and outsourcing company posted an increase in first-half earnings. 

Revenues in the period increased 16.1% to 5.6 billion pounds and net income increased to 221.6 million pounds from $211.0 pounds a year ago. 

Diluted earnings per share increased to 65.5 pence from 63.0 pence a year ago. 

Of the total revenues, North America accounted for 61%, Continental Europe 18% and the UK and Ireland 12%.