Stocks Head into Weekend Mixed, Notching Another Week of Losses

U.S. equities were able to post gains in the final session of a wild week, but notched its tenth week of losses in eleven. Volatility persisted amid rising recession concerns, as a host of key global central banks tightened monetary policies, headlined by this week's largest rate hike by the Fed since 1994. Economic data helped to keep recession concerns buzzing, as the Leading Economic Index declined for a third-straight month, and industrial production came in softer than forecasts. Treasuries were mixed, with the yield curve flattening some, while the U.S. dollar resumed its rally. Crude oil prices were sharply lower and gold traded to the downside. In equity news, Adobe topped earnings estimates but issued softer-than-expected guidance, and U.S. Steel issued a stronger-than-expected outlook. Europe finished mixed, with the global markets grappling with the host of monetary policy tightening, while markets in Asia also diverged.

The Dow Jones Industrial Average lost 38 points (0.1%) to 29,889, while the S&P 500 Index nudged 8 points (0.2%) higher to 3,675, and the Nasdaq Composite gained 152 points (1.4%) to 10,798. In very heavy volume due to quadruple-witching—the simultaneous expiration of option and futures contracts on stocks and indexes—8.3 billion shares of NYSE-listed stocks were traded, and 7.2 billion shares changed hands on the Nasdaq. WTI crude oil plunged $7.26 to $107.99 per barrel. Elsewhere, the gold spot price was down $9.40 at $1,840.10 per ounce, and the Dollar Index rallied 1.0% to 104.68. Markets were lower for another week, as the DJIA lost 4.8%, the S&P 500 decreased 5.8%, and the Nasdaq Composite fell 4.8%.

Stocks remained volatile with the S&P 500 joining the NASDAQ and Russell 2000 in bear market territory this week. Persistently hot inflation has forced the Fed to get more aggressive with its monetary policy and Wednesday it raised the target for the fed funds rate by 75 basis points (bps) and suggested more hikes of that magnitude could come as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her article, Fed Goes for Inflation's Jugular With 75bps Rate Hike. Liz Ann examines the rate hike and how the Fed vowed to forcefully tackle inflation, while conceding the path to a soft landing has become "more challenging."

Amid this market backdrop, Liz Ann notes in her article, Panic Is Not a Strategy—Nor Is Greed, discussing how disciplined investing helps investors navigate through volatile environments. You can follow Liz Ann on Twitter: @LizAnnSonders.

Read all our market commentary, including our commentaries, Stock Market Volatility: Bear Market Territory, and 7 Investing Strategies to Prepare for Bear Markets, on our Insights & Education page, and you can follow us on Twitter at @SchwabResearch.

In equity news, Adobe Incorporated (ADBE $361) reported adjusted fiscal Q2 earnings-per-share (EPS) of $3.35, compared to the $3.31 FactSet estimate, as revenues rose 14.0% year-over-year (y/y) to $4.4 billion, slightly above the Street's forecast of $4.3 billion. The software company said it saw strong demand across its Creative Cloud, Document Cloud, and Experience Cloud. However, ADBE issued full-year guidance that came in below expectations, citing increased effective tax rates, the impact of the ongoing war in Ukraine, foreign exchange headwinds, and summer seasonality. Shares traded lower.

United States Steel Corporation (X $20) issued Q2 EPS guidance that was above expectations, noting increased demand across its customer base and rising order activity, while in Europe higher raw material costs resulting from the war in Ukraine are expected to be more than offset by higher steel selling prices in the region. Shares were higher. Treasury yields mixed after Fed action this week, LEI extends losing streak, production misses Treasuries were mixed in the final session of a volatile week as high inflation data forced the Fed to aggressively tighten its monetary policy with a 75 bp rate hike on Wednesday and signal more hikes to come.

Check out Schwab's Chief Fixed Income Strategist Kathy Jones' 2022 Mid-Year Outlook: Fixed Income in which she discusses how returns should be better for fixed income investors in the second half of 2022, now that interest rates have reset higher. However, we still expect volatility to remain high as central banks shift away from easy-money policies. Be sure to follow Kathy on Twitter: @KathyJones.

The yield on the 2-year Treasury note ticked 1 bp higher to 3.17%, while the yield on the 10-year note declined 8 bps to 3.22%, and the 30-year bond rate decreased 7 bps to 3.28%.

The Conference Board's Leading Economic Index (LEI) (chart) for May declined 0.4% month-over-month (m/m), matching the consensus Bloomberg estimate and April's negatively-revised decrease. The index recorded its third negative read in a row as stock prices, consumer expectations, and building permits were the biggest drags, more than offsetting gains for jobless claims and the interest rate spread.

The Federal Reserve's report on industrial production (chart) showed a 0.2% m/m increase in May, below estimates of a 0.4% gain, and compared to April's upwardly-revised 1.4% increase. The Fed said manufacturing output declined after three months when growth averaged nearly 1.0%, while mining and utilities output both rose solidly. Capacity utilization nudged higher to 79.0% from the prior month's downwardly-adjusted 78.9% rate, versus forecasts of an increase to 79.2%.

Please note: all U.S. markets will be closed on Monday in observance of the Juneteenth holiday.

Europe mixed as early gains fade European equities finished mixed, as choppiness continued in the wake of the solid weekly declines that have come from global uneasiness about a potential worldwide recession that has been fueled by central bank monetary policy tightening. This week, the Fed in the U.S. announced that largest rate hike since 1994, the Bank of England raised rates for a fifth-straight meeting, and the Swiss National Bank surprised the markets by boosting its benchmark interest rate by 50 bps—its first increase since 2007. Moreover, the European Central Bank held an emergency meeting to address the threat of bond yield fragmentation in the region after last week saying it will raise rates and end its asset purchases in July. Persistent inflation has been the main catalyst of the monetary policy actions on the heels of last week's hotter-than-expected consumer price inflation out of the U.S., and as the Eurozone confirmed that its inflation remains at record high levels, all exacerbated by the ongoing war in Ukraine. The euro and British pound traded solidly lower versus the U.S. dollar and bond yields in the Eurozone also saw pressure, while rates in the U.K. ticked higher. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA offers his 2022 Mid-Year Outlook: Global Stocks and Economy, discussing how economic uncertainty may have peaked in the first half of 2022 but could still contribute to volatility and affect market performance for the remainder of the year. You can follow Jeff on Twitter: : @JeffreyKleintop.

The U.K. FTSE 100 Index was down 0.4%, Germany's DAX Index rose 0.7%, France's CAC-40 Index ticked 0.1% lower, Spain's IBEX 35 Index gained 0.8%, Italy's FTSE MIB Index advanced 0.3%, and Switzerland's Swiss Market Index lost 0.3%.

Asia mixed to close out the week

Stocks in Asia finished mixed with the markets continuing to grapple with the global economic implications of tighter monetary policies to combat high and festering inflation after central banks in the U.S., U.K., Switzerland, Brazil, and Taiwan all hiked rates this week, with the Fed leading the charge. Recession concerns have ramped up and the markets have been volatile amid this backdrop. However, the Bank of Japan (BoJ) today maintained its ultra-loose monetary policy and China has offered monetary support as of late to try to help its economy stabilize, which has slowed amid COVID-induced lockdowns. The slowing in China's economy has contributed to the global growth concerns, and Schwab's Jeffrey Kleintop discusses in his article, Recession in China?, how China's economy and consumer market has likely slipped into a recession, at least by China's standards. Jeff takes a look at the short-term and long-term impacts of any extended disruption of the lockdowns on consumer spending and business output.

Japan's Nikkei 225 Index fell 1.8%, with the yen choppy in the wake of the BoJ's decision and resuming a recent plunge versus the U.S. dollar after rebounding earlier this week. China's Shanghai Composite Index increased 1.0%, and the Hong Kong Hang Seng Index rose 1.1%. Australia's S&P/ASX 200 Index dropped 1.8%, South Korea's Kospi Index declined 0.4%, and India's S&P BSE Sensex 30 Index dipped 0.3%.

Stocks continue weekly slide

The S&P 500 posted its tenth weekly loss in eleven as recession concerns continued to heat up following economic data and a flood of global monetary policy tightening moves. Accompanying the Fed's largest rate increase since 1994, central banks out of England, Taiwan, and Brazil also hiked rates as inflation remains severely elevated globally. Tightening of financial conditions boosted recession concerns as central banks batten up the monetary policy hatches amid the backdrop of already slowing economic growth that has been exacerbated by the COVID-related lockdowns in China and the ongoing war in Ukraine. Economic data also did little to counter the rising recession chatter, with retail sales softer than expected for May, manufacturing activity out of New York and Philadelphia unexpectedly contracting in June, and the spike in interest rates continuing to weigh on the housing market, as homebuilder sentiment hit a two-year low in June and building permits and housing starts both fell more than expected in May. Treasuries fell and yields moved higher, with the curve flattening and briefly inverting at some key maturities to stoke recession worries. The U.S. dollar continued to climb, posting a fresh twenty-year high, and gold saw noticeable pressure despite the inflation concerns. Crude oil prices trimmed a recent rally after hitting multi-decade highs last week. Losses were widespread with all S&P 500 sectors seeing solid red figures, with the Energy sector tumbling to trim some of its decisive outperformance seen this year.

Next week will be shortened due to Monday's Juneteenth observation, but the economic calendar will deliver some data points that could garner attention. Housing will be prominent, courtesy of the releases of existingand new home sales reports, which have seen slowing activity amid the drop in housing affordability due to surging prices and spiking mortgage rates. The docket will also bring some timely reads on the economy in the form of initial jobless claims for the week ended June 18, June preliminary Manufacturing and Services PMIs from S&P Global, and the revision to the June University of Michigan Consumer Sentiment Index, which preliminarily tumbled to a record low last week on inflation uneasiness. FedSpeak will also be in focus as a host of Fed officials are set to speak, headlined by the two-day semi-annual Congressional testimony from Chairman Jerome Powell.

Next week's international economic calendar will also offer some reports that could command attention, highlighted by a host of June Manufacturing and Services PMIs out of Australia, Japan, the Eurozone, and the U.K. Other reports that deserve a mention include: Australia—Minutes from the Reserve Bank of Australia's June monetary policy meeting, in which it hiked rates by a larger amount than expected. China—1-year and 5-year loan prime rate decisions. Japan—National consumer price inflation figures, and department store sales. Eurozone—construction output, and consumer confidence, along with German producer price inflation and business confidence. U.K.—inflation statistics, consumer confidence, and retail sales.

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