More Disappointing Data Leads Stocks Lower…..

U.S. stocks closed the day lower as they limped across the finish line; however, were still able to post a sharp weekly advance. The markets accelerated to the downside after a host of global preliminary July manufacturing and services sector reports all signaled slowing business activity, notably a drop into contraction territory for the U.S. services sector. Defensive stocks fared well on the day as the markets appeared to take a risk off posture following the soft economic data, while the Communication Services sector was the notable laggard. Q2 earnings season continued to roll on, as Snap fell sharply after its results, Dow member Verizon Communications saw pressure after posting mixed results, and Mattel dropped after issuing softer-than-expected guidance. However, Dow component American Express rallied after topping expectations. Treasuries gained ground to apply some downside pressure on yields, but the inversion of the curve remained. The U.S. dollar continued to pullback from a multi-decade high, while crude oil prices fell and gold prices traded to the upside. Asia finished mixed following data, and Europe closed modestly higher.

The Dow Jones Industrial Average decreased 138 points (0.4%) to 31,899, the S&P 500 Index lost 37 points (0.9%) to 3,962, and the Nasdaq Composite fell 226 points (1.9%) to 11,834. In moderate volume, 4.0 billion shares of NYSE-listed stocks were traded, and 4.7 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.65 to $94.70 per barrel. Elsewhere, the gold spot price was $14.00 higher to $1,727.40 per ounce, and the Dollar Index lost 0.3% to 106.63. Markets were sharply higher for the week, as the DJIA added 2.0%, the S&P 500 rose 2.6%, and the Nasdaq Composite gained 3.3%.

July preliminary business activity reports slow with services falling into contraction…..

Treasuries were higher and the inversion of the 2-year and 10-year notes remained intact—but has narrowed—as the markets continue to grapple with an aggressive Fed to fight high inflation and what the ultimate impact will be on the economy. The yield on the 2-year Treasury note was down 10 basis points (bps) to 2.99%, the yield on the 10-year Treasury note declined 14 bps to 2.77%, and the 30-year bond rate decreased 8 bps to 2.99%.

The preliminary S&P Global U.S. Manufacturing PMI Index for July declined to 52.3 from June’s unrevised 52.7 figure, and versus the Bloomberg estimate of a decrease to 52.0. The preliminary S&P Global U.S. Services PMI Index showed growth for the key U.S. sector this month unexpectedly fell into contraction territory, dropping to 47.0, compared to expectations to remain at June’s 52.7 figure. Readings of 50 for both indexes are the demarcation point between expansion and contraction.

S&P Global said its Composite PMI—a combination of the manufacturing and services—for July saw the first contraction in business activity since June 2020, signaling a further loss of momentum across the economy of a degree not seen—outside of COVID-19 lockdowns—since 2009. S&P Global added that the downturn was led by a steep drop in service sector activity, though production at manufacturers also fell marginally, down for the first time in over two years.

The business activity reports capped off the week and set the stage for next week that will see some key data and events, headlined by the Federal Open Market Committee’s (FOMC) monetary policy decision on July 27. The FOMC is expected to raise its target for the fed funds rate by 75 bps for a second-straight meeting, but there is speculation that it could go larger to try to stomp out persistently high inflation. The decision will not have updated economic projections but will offer the customary press conference from Fed Chairman Jerome Powell, which will likely be highly scrutinized.

In addition to the FOMC’s monetary policy decision, next week will deliver the first look (of three) at Q2 GDPpersonal income and spending figures for June, initial jobless claims for the week ended July 23, July Consumer Confidence, preliminary June durable goods orders, and new home sales for last month.

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