Early Monday morning, US stock futures fell significantly, particularly those tied to the Dow Jones Industrial Average. These fell 0.44% or 139 points, while S&P 500 futures fell 0.6% and Nasdaq 100 futures fell 0.89%.
The Dow and the S&P traded slightly lower last Friday, while the Nasdaq Composite rose for a fifth consecutive day.
Most of the major medians had a positive week after a better-than-expected employment report on Friday, which shows that the economic downturn that investors feared is not yet here, giving them some hope.
Treasury yields also rose, with two-year Treasury yields exceeding 10-year yields, a reversal that many believe to be an indicator of a recession. Greg Bassuk, Managing Director of AXS Investments, also said:
“While the markets ended in solid green for the week, investors should brace for continued volatility in July, with ongoing uncertainties looming with respect to inflation, Fed policy, recession concerns, the enduring Russian-Ukraine war, all as we also move into corporate earnings season.”
No matter how beneficial this is for the economy, the jobs reports could encourage the Federal Reserve to continue its policy of aggressive rate hikes in the coming months to combat high inflation. That remains to be seen, but speculation will be tested this week with a string of big bank earnings and consumer inflation data this week.
“With recessionary fears weighing on the markets, investors are hyper-focused on corporate earnings for greater clues about the health of corporate America and the broader US economy,” said Bassuk. “A sharper lens will be needed to dissect these earnings reports, as a strong second quarter might be accompanied by very conservative outlooks.”
“As commodity and other producer costs remain high, companies will be factoring in the extent to which those heightened prices can be passed on to consumers and, likewise, how to keep earnings vigorous amid economic, geopolitical and other key headwinds,” he added.
Investors also expect key inflation data this week, with the June CPI due out on Wednesday. Headline inflation is expected to exceed 8.6% from May.
“Investors expect more aggressive Fed rate hike actions,” said Bassuk. “Unless the inflation data shows an outsized reduction in prices, balanced against concerns that an over-aggressive boost in rates could tip the US into recessionary territory.”
The June PPI is due out on Thursday, while the University of Michigan consumer confidence report is due out on Friday.