Stocks Finish Lower Amid Cautiousness with Fed’s Decision…..

U.S. equities ended the day lower following a host of soft data and as earnings season kicked into high gear. The Fed also began its two-day monetary policy meeting today, and it is largely expected to increase rates by 75 basis points (bps) this week for the second-straight meeting. Dow members Coca-Cola, McDonald’s, and 3M all rose after beating earnings expectations, but all three companies warned of the impact from inflation for the rest of the year. Fellow Dow member Walmart fell after cutting its earnings guidance due to inflation pressures and changing consumer behaviors, which has sparked concerns on how other major retailers will perform. Shares of General Motor went down as the company missed earnings expectations but reaffirmed its full-year guidance. Housing data came in softer than expected as home prices rose at a slower pace than expected, and new home sales were lower than expected. Consumer confidence also took a hit, decreasing more than expected. Treasuries rose, and the yield curve remained inverted. The U.S. dollar continued its recent spike, and crude oil and gold prices both decreased. Europe ended lower, and Asia finished mostly higher as both regions were also highly tapped into earnings news.

The Dow Jones Industrial Average declined 229 points (0.7%) to 31,762, the S&P 500 Index fell 46 points (1.2%) to 3,921, and the Nasdaq Composite decreased 220 points (1.9%) to 11,563. In moderate volume, 3.8 billion shares of NYSE-listed stocks were traded, and 4.2 billion shares changed hands on the Nasdaq. WTI crude oil dropped $1.72 to $94.98 per barrel. Elsewhere, the gold spot price fell $3.20 to $1,715.90 per ounce, while the Dollar Index went up 0.7% to 107.17.

New home sales fell as home prices and rates rise, consumer confidence missed expectations…..

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 20.5% y/y gain in home prices in May, below the Bloomberg consensus estimate of a 20.6% rise. Home prices were up 1.3% month-over-month (m/m) on a seasonally adjusted basis, compared to forecasts of a 1.5% gain.

The Conference Board’s Consumer Confidence Index decreased to 95.7 in July from June’s downwardly-revised 98.4 level, and versus the Bloomberg estimate calling for a reading of 97.0. The overall index was hampered by the Expectations Index of business conditions for the next six months portion of the index, which decreased to 65.3 from June’s 65.8 level, while the Present Situation Index portion of the survey declined to 141.3 from the previous month’s 147.2 level. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—decreased to 37.8 from the 39.9 level posted in June.

The Richmond Fed Manufacturing Activity Index surprisingly increased into neutral territory (a reading below zero denotes contraction, while a reading above zero denotes expansion) for July, jumping to 0 from June’s -11 reading, and well above forecasts for a reading of -14. New order volume and shipments both improved with the former remaining in contraction territory but the latter increasing to expansion territory, while prices paid decelerated slightly but remained elevated.

In housing news, new home sales fell 8.1% m/m in June to an annual rate of 590,000 units, well below forecasts calling for a rate of 655,000 units, and below May’s downwardly-revised 642,000-unit level. The median home price rose 7.4% y/y to $402,400. New home inventory increased to 9.3 months from May’s level of a 7.7 months of supply at the current sales pace. Sales jumped in the Midwest and ticked lower in the Northeast, while falling in the South and West. Sales were lower y/y in all regions. New home sales are based on contract signings, offering a timelier read on housing activity compared to the larger contributor of existing home sales, which are based on closings.

This data sets the stage for a busy week, but the headline this week is likely the Federal Open Market Committee’s (FOMC) monetary policy decision on Wednesday. The FOMC is expected to raise its target for the fed funds rate by 75 bps for a second-straight meeting. 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 as the markets try to determine how aggressive the Central Bank will remain at its next meeting in September.

Treasuries are rising modestly, and the inversion of the 2-year and 10-year notes remains intact with the markets grappling with an aggressive Fed to fight high inflation and what the ultimate impact will be on the economy.

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