Big Movers In June 2022
Dollar General (DG): The discount retailer continued to advance following a strong quarterly report on 26 May. Analysts cheered the company’s ability to maintain sales growth and overcome inflationary pressures.
Royal Caribbean (UA): The cruise-line operator fell along with other travel stocks as investors worried about higher fuel costs and potentially weaker demand.
General Mills (GIS): The packaged-food maker reported better-than-expected earnings and revenue on 29 June. The company also raised its dividend as higher inflation causes more Americans to eat at home.
Carnival (CCL): The cruise-ship operator fell along with RCL as investors worried about the industry’s heavy debt loads.
AutoZone (AZO): The auto-parts retailer continued to climb following a strong quarterly report on 24 May. Comparable sales surprised to the upside, partly because a shortage of new vehicles has boosted demand for replacement parts.
Delta Airlines (DAL): The airline fell as rising fuel costs, heavy debt loads and pilot shortages offset strong demand for the travel industry.
Key Economic Events Last Month
Inflation Jumps to 41-Year High
The Consumer Price Index (CPI) for May rose 8.1% on a year-over-year basis. It was higher than expected and the sharpest increase since 1981. Energy, shelter, airline fares and vehicles contributed to the inflationary trend. (10/6)
Housing at a crossroads?
June’s consumer sentiment index fell to a record low of 50.2, well below the consensus estimate of 58. Expectations darkened as inflation surged. (10/6).
Inflation Batters Retail Sales
May’s retail sales report showed a contraction of 0.3%, below consensus expectations for a 0.2% gain. Economists blamed inflation for the miss. April’s reading was also revised lower. (15/6)
Fed Hikes Interest Rates 75 Basis Points
The Federal Reserve raised interest rates by 75 basis points, the largest increase since 1994. Officials indicated more hikes are coming to restrain inflation. Chairman Jerome Powell and other policymakers reiterated the message several times in the month. (15/6)
Key Futures Contracts
| Product Name | Current Month | Expiration | Next Month | 1-Mon% |
|---|---|---|---|---|
| S&P 500 E-Mini (@ES) | ESU22(Sep) | 16 Sep 2022 | ESZ22(Dec) | -8.2% |
| S&P 500 E-Mini Micro (@MES) | MESUM22 (Sep) | 16 Sep 2022 | MESZ22 (Sep) | -8.2% |
| Nasdaq-100 E-Mini (@NQ) | NQU22 (Sep) | 16 Sep 2022 | NQZ22 (Sep) | -11% |
| Nasdaq-100 E-Mini Micro (@MNQ) | MNQU22 (Sep) | 16 Sep 2022 | MNQZ22 (Sep) | -11% |
| Dow Jones E-Mini (@YM) | YMU22 (Sep) | 16 Sep 2022 | YMZ22 (Sep) | -6.3% |
| Dow Jones E-Mini (@MYM) | MYMU22 (Sep) | 16 Sep 2022 | MYMZ22 (Sep) | -6.3% |
Events to Watch This Month
| Date | Event | WhattoWatch |
|---|---|---|
| Fri, 8-July | Employment Report | Non-farm payroll changes and revisions, unemployment, wage inflation. |
| Wed, 13-July Thu, 14-July |
Inflation reports for June | Consumer prices are due 10 June, followed by producer prices on 14 July. |
| Thu, 14-July | Earnings season begins | JPMorgan Chase (JPM) and Morgan Stanley (MS) are the first major financials to announce results. Major tech stocks including Apple (AAPL) and Microsoft (MSFT) follow later in the month. |
| Tue, 19-July | Housing starts, building permits for June | How much have higher interest mortgage rates slowed homebuilding? |
| Wed, 27-July | Federal Reserve meeting | What is the Fed’s view of inflation? Chairman Powell holds a press conference 30 minutes after the policy statement is released. |
Sector Watch
Energy stocks had their biggest monthly drop in over a year as investors looked for higher interest rates to slow demand.
Materials stocks had their biggest drop in over a year as economic data slowed and the U.S. dollar gained.
Health Care performed the best in May as investors targeted biotechnology and pharmaceutical companies.
Financials declined sharply as investors worried about slower economic growth. A flatter yield curve also threatened lending margins.
Noteworthy Calls & Predictions
The World Bank lowered its forecast for 2022 global economic growth from 4.1% to 2.9%, anticipating a stagflationary period like the 1970s. The Organisation for Economic Cooperation and Development (OECD) followed the next day, cutting projected growth from 4.5% to 3%
EconomyMohamed El-Erian of Allianz sees further downside in stocks because inflation hadn’t yet peaked. Famed billionaire investor Stanley Druckenmiller separately predicted that “the bear market has a ways to run.”
StocksOrlando Bravo of Thoma Bravo sees more downside in technology stocks because of weak profit outlooks and higher interest rates. He also expects more layoffs in the industry.
Nasdaq 100JPMorgan Strategist Nikolaos Panigirtzoglou writes that stock prices imply an 85% chance of a U.S. recession. He added that falling equities and weakening confidence may become a self-fulfilling prophecy.
EconomyGoldman Sachs economist Jan Hatzius says the risk of recession has increased. However, he sees slowing inflation later in the year reducing the need for interest-rate hikes. Hatzius had said on 31 May that worries about a contraction were “overblown.”
EconomyDisclosure
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