(Bloomberg) — US stocks fell for a third day after Microsoft Corp. cut its revenue target, fueling concerns about the state of Corporate America. Oil reversed losses even after OPEC+ agreed to bigger oil production hikes for the coming months.
The S&P 500 declined 0.2% while the Nasdaq 100 was little changed. Treasuries extended losses with the 10-year yields above 2.90%. And the dollar was weaker against major peers.
OPEC+ will increase the size of its oil-supply hikes by about 50% in July and August, bowing to pressure from major consumers to ease prices with Saudi Arabia now ready to pump more oil if Russian output declines.
A decline in oil prices would help steady sentiment after US manufacturing activity and job openings data Wednesday fueled concern the Federal Reserve will need to get more restrictive to slow runaway price gains. ADP data ahead of the US jobs report also showed US companies added the fewest number of jobs since the pandemic recovery began.
Shares of Microsoft Corp. fell 2% after paring its quarterly forecast due to unfavorable foreign exchange rates as demand for the dollar has surged with the war in Ukraine and the speed of the Fed’s rate hikes relatives to other developed economies.
“US economic growth slowed in recent weeks amid high inflation and rising rates, and some of the Fed’s business contacts from different parts of the country are even beginning to worry about recession,” Jessica Rabe, co-founder of DataTrek Research, said in a note. “While Chair Powell wants the US economy and labor market to cool to bring down inflation, it’s still unclear how much tightening monetary policy will impact economic growth and, most importantly for equity investors, corporate earnings.”
Investors are on edge over whether the US central bank’s tighter policies will induce a recession. A chorus of Fed officials has fallen behind calls to keep hiking to counter price pressures. Mary Daly of the San Francisco Fed and her more hawkish colleague James Bullard of St. Louis both backed a plan to raise rates by 50 basis points this month, while Richmond’s Thomas Barkin said it made “perfect sense” to tighten policy.
“We do see the rise in probability of a recession in the second half of this year, potentially persisting into 2023 as the Fed continues to battle inflation,” Tracie McMillion, Wells Fargo Investment Institute head of global asset allocation strategy, said on Bloomberg TV.
McMillion also cautioned that markets haven’t fully priced in the impact of the Fed’s balance-sheet reduction. “The impact of quantitative tightening starting to roll off the Fed’s balance sheet this month is really untested and unprecedented. Our guess is that it’s probably not fully priced into markets,” she said.
Among individual stock moves, Chewy Inc. rallied after the online pet products retailer’s results topped analyst expectations. Hewlett Packard Enterprise Co. slid after the company cut its full-year profit forecast.
How will markets be affected by the Fed’s quantitative tightening? QT officially starts Wednesday and is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.
Here are some key events to watch this week:
- Cleveland Fed President Loretta Mester discusses the economic outlook Thursday
- US May employment report Friday
- The UN’s Food and Agriculture Organization releases its monthly food price index at a time of maximum concern about global supplies on Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.5% as of 9:57 a.m. New York time
- The Nasdaq 100 fell 0.4%
- The Dow Jones Industrial Average fell 0.6%
- The Stoxx Europe 600 rose 0.3%
- The MSCI World index fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.4% to $1.0694
- The British pound rose 0.3% to $1.2526
- The Japanese yen rose 0.1% to 129.95 per dollar
Bonds
- The yield on 10-year Treasuries advanced three basis points to 2.94%
- Germany’s 10-year yield advanced four basis points to 1.23%
Commodities
- West Texas Intermediate crude rose 0.9% to $116.35 a barrel
- Gold futures rose 1% to $1,867.40 an ounce
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