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SALT IN THE WOUND: JOBLESS CLAIMS, HOME SALES, PHILLY FED, LEADING INDICATORS (1115 EDT/1515 GMT)
A quartet of downbeat indicators greeted investors on Thursday, who were still nursing their wounds in the wake of Wednesday's bruising session which bore witness to the S&P 500's worst day since June 11 as looming fears of recession prompted a sharp sell-off.
The data did little to assuage those fears.
The number of U.S. workers filing first-time application for jobless benefits unexpectedly crept higher to 218,000 last week, according to the Labor Department.
Consensus called for an even 200,000.
While the number resides within the range economists associate with healthy labor market churn, and suggests softening market conditions are emboldening employers to hand out pink slips amid a tight labor market.
Noting that initial claims reached a 10-week high, Quincy Krosby, chief equity strategist at LPL Financial suggests that "coupled with weaker than expected earnings reports from major retailers," the report raises "questions about the durability of the economy are leading to an uptick in layoffs."
Still, the worker drought continues, with job openings near record highs and unemployment and participation rates languishing in the basement.
This is evidenced by the fact that ongoing claims , which are reported on a one-week lag, slid to 1.317 million, the lowest level in more than half a century.
This hints at continued upward pressure on wage inflation, a worrisome phenomenon for Fed watchers as they lay bets on the extent and severity of Powell & Co's interest rate hikes expected in the coming months.
The sales of previously-owned U.S. homes dropped 2.4% in April to 5.61 million units at a seasonally adjusted annualized rate (SAAR).
The National Association of Realtors' (NAR) Existing Home Sales print landed below the expected 5.65 million units SAAR consensus and added the next pearl in a necklace of housing indicators suggesting the sector's star is losing its luster.
With this, the indicator returns to its pre-pandemic level for the first time since social distancing mandates gave birth to the housing demand boom which sent homebuyers fleeing for the suburbs.
"Higher home prices and sharply higher mortgage rates have reduced buyer activity," writes Lawrence Yun, chief economist at NAR. "It looks like more declines are imminent in the upcoming months, and we'll likely return to the pre-pandemic home sales activity after the remarkable surge over the past two years."
The drop in sales led to a rebound in inventories - it would now take 2.2 months at the current rate to sell every home on the market - a trend which could help lasso spiking home prices and bring them back to terra firma:
Data from the Philadelphia Federal Reserve shows manufacturing activity in the mid-Atlantic region has abruptly decelerated this month.
The Philly Fed Business index plunged 15 points to a reading of 2.6, notching a two-year low, undershooting consensus by a country mile and landing within spitting distance of contraction territory.
Together with the Empire State data released on Monday, which tumbled 36.2 points to -11.6, the reports paint a picture of east coast factory activity facing considerable headwinds.
A Philly Fed/Empire State number above zero signifies monthly expansion.
On a granular level, increases in new orders and shipments were offset by lower readings from employment, delivery times, inventories and capex outlook components.
"For manufacturing, supply side constraints and shortages remain headwinds for factories and there is downside risk now from the Ukraine war and China lockdowns," says Rubeela Farooqi, chief economist at High Frequency Economics.
Finally, the Conference Board's (CB) Leading Indicator index unexpectedly contracted by 0.3% in April.
Economists expected no change.
The index is an amalgamation of ten forward-looking data series, including factory orders, jobless claims, stock prices, building permits and the spread between benchmark Treasury yields and the Fed funds target rate, among others.
April's decline was largely attributable to "weak consumer expectations and a drop in residential building permits," said Ataman Ozyildirim, CB's senior director of economic research. "A range of downside risks—including inflation, rising interest rates, supply chain disruptions, and pandemic-related shutdowns, particularly in China—continue to weigh on the outlook."
The graphic below compares the index with the "expectations" component of CB's Consumer Confidence index:
Wall Street is off its lows in morning trading, but the S&P 500 remained within two percentage points of confirming it's been in a bear market since its early January closing high.
Transports and consumer staples are among the biggest percentage losers.
(Stephen Culp)
THE DAY EUROPEAN STAPLES WENT DOWN (1012 EDT/1412 GMT)
Only time will tell if the historic drops sustained by Walmart and Target were defining moments in this inflation-fueled market cycle, but there are other worrying signs on the other side of the pond that consumers are struggling to cope with.
Europe's food and beverages index, is falling well over 4%, it's worst performance since March 2020.
The index is home to major consumer staple groups such as Switzerland's Nestle, the UK's alcohol beverages group Diageo, and Dutch beer maker Heineken.
These stocks are down 5.1%, 5.3% and 4.8% respectively and other big names, such as Belgium's brewer AB Inbev or Denmark's Carlsberg are losing over 3%.
(Julien Ponthus)
S&P 500 FLIRTS WITH BEAR-MARKET TERRITORY (0955 EDT/1355 GMT)
Major U.S. indexes are under pressure in early trade on Thursday after the S&P 500's biggest rout this year in the previous session, as investors fret over the impact of surging inflation on the economy and corporate earnings.
With the weakness, the S&P 500 index, at around 3,880, is nearing its May 12 intraday low at 3,858.87, and the 38.2% Fibonacci retracement of its March 2020-January 2022 bull-phase at 3,815.20.
The benchmark index is currently down 19.1% from its January 3 record finish, putting it close to bear-market territory, or a 20% decline from its high on a closing basis.
Here is where markets stand in early trade:
(Terence Gabriel)
GOLDMAN SACHS RECESSION GUIDE: GO ON THE DEFENSIVE (0918 EDT/1318 GMT)
Economists at Goldman Sachs estimate a 35% probability that the U.S. economy will enter a recession during the next two years, and they believe the yield curve is pricing a similar likelihood of a contraction.
GS notes that rotations within the U.S. equity market indicate that investors are pricing rising risk of a downturn compared with the strength of recent economic data.
Defensive sectors and "quality" factors have generally outperformed during the 12 months before the start of a recession, GS says, pointing to data from across 5 recessions since 1981 showing energy, consumer staples, healthcare and utilities outperforming the index.
So far, the energy sector is the sole year-to-date gainer, rising more than 46%. Utilities, staples and healthcare are posting the smallest losses so far this year.
Additionally, GS notes dividend futures markets imply S&P 500 dividends will decline by nearly 5% in 2023. In the last 60 years, S&P 500 dividends have only fallen during a recession.
Separately, Barclays strategists also said margins for U.S. companies and their forward earnings were under pressure due to a combination of factors, ranging from severity of China's COVID lockdowns to the war in Ukraine and the U.S. Federal Reserve's hawkish stance.
(Shreyashi Sanyal)
NASDAQ COMPOSITE: ABOUT TO CATCH ITS BREADTH? (0900 EDT/1300 GMT)
The Nasdaq Composite has certainly been wheezing of late. The tech-laden index has lost about 22% of its value just since early April, and on Wednesday it ended down 29% from its November record close. And with CME e-mini Nasdaq 100 futures under pressure in premarket trade, the Composite appears set to start out the day on the back foot again.
Meanwhile, the Nasdaq McClellan Summation (McSum), which is a measure of internal strength based on advancing and declining issues, has been especially weak. However, with Wednesday's -6,893 finish, this measure is reaching important support :
The McSum bottomed in late-January at -7,229, which was just below its late-2008 trough at -6,896. The late-January bottom also came as the measure slipped just slightly below a support line from late-2012. That line contained weakness in late 2018 and again in early 2020, essentially coinciding with major lows in the Composite. That line now resides around -7,250.
Therefore, with important support running from -6,896 to around -7,250, the McSum may be very close to another low.
It's always possible the McSum could languish at historically low levels. However, of note, the measure's tendency has been to form V-bottoms. Therefore, a sharp thrust back above its descending 10-day moving average (DMA), which ended Wednesday at -6,442, may confirm pressure is coming off the downside, and suggest potential for a sustained rally.
Using Refinitiv data back to mid-1995, the McSum's all-time low was -8,905 in September 1998.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)