Last Updated 4:15 PM EST
Stock indices finished today’s trading session in the red. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 decreased 0.54%, 0.4%, and 0.72%, respectively. The sell-off in stocks was likely due to rising bond yields, which continue to increase in anticipation of the Federal Reserve’s tightening. Higher bond yields tend to negatively impact stock valuations.
The U.S. 10-Year Treasury yield increased to 3.34%, a jump of almost 11 basis points. Similarly, the Two-Year Treasury yield also increased, as it hovers around 3.5%. This brings the spread between them to -16 basis points. The negative spread indicates that investors still have fears of a recession.
Compared to Friday, the market is pricing in a higher chance of a higher Fed Funds rate for the end of the year. In fact, the market’s expectations for a rate in the range of 3.75% to 4% increased to 69.4%, which is up from Friday’s expectations of 44.9%. In addition, the market is now also assigning a 26.3% probability to a range of 3.5% to 3.75%. For reference, investors had assigned a 45.5% chance Friday.
Russia Cuts Natural Gas Supplies to Europe
Last Updated 3:30 PM EST
Stocks are in the red heading into the final 30 minutes of today’s trading session. As of 3:30 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.6%, 0.4%, and 0.7%, respectively.
The communications sector is the session’s laggard, as it’s down 1%. Conversely, the real estate sector (XLRE) is the session’s leader, with a gain of 1.2%.
Natural gas prices in Europe jumped today after Russia announced that it has cut off natural gas supplies to Europe in response to the economic sanctions imposed by the west. This is troublesome for Europe because many countries rely on Russia for energy.
Given that these countries don’t have enough natural gas stored for the winter, it could force people to ration energy once the cold arrives. This would include industries that rely on natural gas to power their equipment. In such a situation, Europe’s economy would almost certainly plunge into a recession, as productivity would decrease substantially.
Nonetheless, countries are making plans in an attempt to prepare for the winter with the assumption that Russia will provide zero natural gas, as both sides refuse to back down.
Stock Indices Fall Again after Brief Intraday Rally
Last Updated 1:48PM EST
After giving investors something to cheer about earlier on in the day, the major stock indices are once again in the red following a brief rally earlier on in the day. As of 1:48 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.7%, 0.6%, and 0.9%, respectively.
Stock Indices Erase Losses as Buyers Jump In
Last Updated 11:22AM EST
Stocks remain volatile as the major indices erased their losses. The Dow Jones Industrial Average and the S&P 500 are both up 0.1%. Meanwhile, the Nasdaq is almost flat on the day.
However, WTI crude oil is down 2.6% despite the cut in oil production from OPEC. It appears that the market’s fear of a recession continues to outweigh other developments in the oil industry. Nevertheless, the decrease in oil prices is good news for consumers.
The commodity’s downtrend has led to lower gas prices across the country. The national average for regular gas was last $3.779 per gallon, down from yesterday’s reading of $3.786. This is significantly lower than the all-time high of $5.016 per gallon on June 14.
The highest price can be found in Hawaii, where prices are substantially higher than the national average at $5.299 per gallon. On the other hand, Texas is the state with the lowest gas price at $3.252 per gallon.
It’s likely that this downward trend will continue going forward as the Federal Reserve looks to raise interest rates to fight inflation. However, higher rates will destroy demand throughout the whole economy. As a result, lower gas prices might have to come at the cost of a recession.
ISM Non-Manufacturing PMI Beats Expectations
Last Updated 10:00AM EST
Equity markets are in the red after the first 30 minutes of today’s trading session. As of 10:00 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.3%, 0.3%, and 0.6%, respectively.
The communications sector (XLC) is the session’s laggard, as it’s down 1.2%. Conversely, the utilities sector (XLU) is the session’s leader, with a gain of 1.2%.
On Tuesday, the Institute for Supply Management released its monthly report for the ISM Non-Manufacturing Purchasing Managers’ Index, which measures the overall economic condition of the non-manufacturing sector.
A number over 50 represents an expansion, whereas anything below 50 signals a contraction. The report came in at 56.9, better than the expected 55.1 and higher than last month’s reading of 56.7.
It’s worth noting that this indicator has been in an overall downtrend since peaking in December 2021, when it hit a high of 69.1. If this trend continues, it might not take long before the non-manufacturing sector enters into contraction. Nevertheless, the last two months have seen increasing expansion.
Furthermore, the ISM Non-Manufacturing Employment report came in at 50.2, indicating that the number of jobs is expanding. This comes after last month’s reading of 49.1, which indicated a contraction. It’ll be interesting to see if this is the beginning of an uptrend or just a temporary boost.
Pre-Market Update
Stock futures moved higher early Tuesday morning as traders came back with fresh optimism after a long weekend. Markets were closed on Monday for Labor Day celebrations.
Futures on the Dow Jones Industrial Average (DJIA) inched 0.69% higher, while those on the S&P 500 (SPX) gained 0.71%, as of 7.05 a.m. EST, Tuesday. Meanwhile, the Nasdaq 100 (NDX) futures advanced 0.73%.
OPEC Cuts Oil Production
On Monday, in a surprise move, the OPEC countries endorsed the step of cutting oil production by 100,000 barrels per day in October. This decision was driven by the estimate that a recession will warrant a supply surplus next year.
Meanwhile, Russia’s stoppage of energy supply to Europe until sanctions are lifted is keeping Europe on edge ahead of winter.
Also, the U.S.’ rejection of Iran’s deal plea means that Iran will not be exporting oil so easily so soon, and the West will have to wait for an uncertain period of time before getting a fresh flow of oil from Iran.
All these developments are keeping the oil sector volatile.
Money Flows into U.S. Stocks from across the World
Amid the furor of rising interest rates, oil and gas sector volatility, inflation, and geopolitical tensions, investors around the world are accumulating U.S. stocks despite the risk of difficult months ahead. This is because investors largely believe that given the situation of economies around the globe, it seems safest to go for companies operating in the largest economy.
Refinitiv Lipper Fund Performance data revealed that investors are pouring money into U.S. equity-focused stock and mutual funds for the past six weeks while shedding positions in international stock funds for 20 straight weeks.
This sentiment can give some slight relief to the U.S. stock market in the coming months.
What Happened on Friday, and What does this Week Hold?
On Friday, the major indices ended with their third straight week of losses. The S&P 500 and the Dow ended the session with a 1.07% loss each, while the Nasdaq 100 declined 1.44% at market close.
This holiday-shortened week holds a few key updates from the Federal Reserve ahead of August’s inflation data due on September 13. Moreover, August’s Purchasing Managers’ Index (PMI) is due out later on Tuesday, giving investors better insight into how the services sector is coping amid the high inflation and strategic monetary tightening.
