Stocks Trying to Claw Out of Early Hole….

U.S. equities are mixed, paring some early losses and remaining choppy after yesterday’s sharp drop amid concerns about inflation pressures weighing on corporate profit margins. Kohl’s Corporation missed earnings forecasts and lowered guidance, joining this week’s disappointing results from Dow member Walmart and Target. In other equity news, Dow component Cisco Systems missed revenue forecasts and issued softer-than-expected guidance, while Amazon reportedly is reducing its hiring plans. The economic calendar suggested slowing economic activity, with leading indicators unexpectedly declining, existing home sales falling, Philadelphia manufacturing growth slowing more than expected, and jobless claims ticking higher. Treasuries are rising, applying some downside pressure on yields and the U.S. dollar is noticeably giving back some of a recent rally. Crude oil prices have turned to the upside and gold is gaining ground. Meanwhile, the global markets continue to contend with tightening monetary policies, rising interest rates, surging energy prices, a strong U.S. dollar, China lockdowns, and the ongoing war in Ukraine. Europe saw broad-based pressure, but off the lows of the day, while Asia finished mostly lower, but China bucked the trend.

As of 12:50 p.m. ET, the Dow Jones Industrial Average is down 1.0%, and the S&P 500 is declining 0.6%, while the Nasdaq Composite is increasing 0.2%. WTI crude oil is rising $0.91 at $107.95 per barrel, and Brent crude oil is advancing $1.63 at $110.64 per barrel. The gold spot price is trading $26.00 higher to $1,841.90 per ounce, and the Dollar Index is falling 1.1% at 102.76.

Weekly initial jobless claims (chart) came in at a level of 218,000 for the week ended May 14, versus the Bloomberg estimate calling for 200,000, and versus the prior week’s downwardly-revised 197,000 level. The four-week moving average rose by 8,250 to 199,500, and continuing claims for the week ended May 7 declined by 25,000 to 1,317,000, versus estimates of 1,323,000. The four-week moving average of continuing claims decreased by 22,500 to 1,362,250.

Existing home sales decreased 2.4% month-over-month (m/m) in April to an annual rate of 5.61 million units, versus estimates of a 5.64 million rate, and March’s figure was adjusted slightly lower to 5.75 million units. Contract closings fell for the third-straight month as sales in two of the four major U.S. regions declined m/m, while sales in the other two regions rose. Compared to last year, sales were lower in all regions. Sales of single-family homes and purchases of condominiums and co-ops were both lower m/m and from the prior year.

The median existing home price was up 14.8% from a year ago to a record high $391,200 and are up for 122 straight months as prices grew in each region. Unsold inventory was at a 2.2-months pace at the current sales rate, up from the from the 1.9-months pace a year earlier. National Association of Realtors Chief Economist Lawrence Yun said, “Higher home prices and sharply higher mortgage rates have reduced buyer activity.” Yun added that, “It looks like more declines are imminent in the upcoming months, and we’ll likely return to the pre-pandemic home sales activity after the remarkable surge over the past two years.” Existing home sales account for a large majority of the home sales market and reflect contract closings instead of signings.

The Conference Board’s Leading Economic Index (LEI) (chart) for April declined 0.3% m/m, below estimates of a flat reading, and following March’s downwardly-revised 0.1% increase. The index recorded its second negative reading of the year as half of the ten index components declined led by consumer expectations, while building permits, jobless claims, average workweek, and ISM new orders also moved lower. Positive contributions came from the interest rate spread and credit conditions.

The Philly Fed Manufacturing Business Outlook Index (chart) fell much more than expected but remained in expansion territory (a reading above zero) for May. The index dropped to 2.6 versus estimates of a decline to 15.0 from April’s 17.6 level. The softer-than-expected report came even as growth in new orders and shipments both accelerated, but employment growth decelerated and inventory expansion slowed solidly. Prices paid cooled somewhat but continued to expand at a severely elevated pace.

Treasuries are higher and yields have been choppy as of late following a recent spike as markets anticipate tighter Fed monetary policy following the early May 50 bp rate hike, and comments this week from Fed Chief Jerome Powell that reiterated an aggressive stance.

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