Dow dropped 228, decliners over advancers about 2-1 & NAZ retreated 220. The MLP index added 1+ to the 205s & the REIT index was steady in the 421s. Junk bond funds were a little lower & Treasuries continued to see strong demand. Oil retreated 1+ to the 94s & gold declined 4 to 1715 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
The Federal Reserve's efforts to cool inflation by hiking rates is most likely to lead to a recession, according to respondents of the CNBC Fed Survey. Though some continue to hold up hope of a soft-landing, the majority thinks the economy will begin to contract later this year. Asked whether the Fed's effort to bring down inflation to its 2% target would create a recession, 63% said it would & just 22% said it would not. At the same time, the 30 respondents — who include fund managers, analysts & economists — put a 55% chance on a recession in the next 12 months, up 20 points from the May survey. Despite growing recession fears, the Fed is expected to hike & continue hiking until ultimately, sometime next year, it eases back interest rates. All but one respondent forecasts a 75-basis point interest rate hike (0.75 percentage point) at the meeting this week; the lone dissenter forecast a full percentage point move. The average forecast then sees the Fed funds rate hitting a peak of 3.8% in Mar 2023. It's then seen declining to 3.1% by year end 2023 & 2.9% by the end of 2024. Of those who predict a recession in the next 12 months, most believe it will begin in Dec & most think it will be mild. At the same time, the average growth forecast has come down sharply. GDP forecasts have been slashed for every qtr this year & annually for this year & next. For example, respondents in Jan had forecast 2022 growth at a robust 4.7%. Over successive surveys that forecast has been slashed to stand at just 0.7% now. The unemployment rate is seen rising by 0.8 percentage point next year to 4.4%, while CPI surges to 6.75% before declining next year to 3.35%. One bright spot, respondents to the survey, who mostly always see the stock market as overvalued, now assess equities as the most reasonably priced since the onset of the pandemic. 48% says stock prices are low or about right relative to the outlook for earnings & economic growth, compared to 48% who say they are high. The 2 have not been that close since Mar 2020, when a majority believed equities were underpriced. As most respondents believe there is a high chance of recession, it suggests that most believe the stock market at this point has already priced in the downturn, at least a mild one. While forecasts for the S&P have been brought down, they continue to show upside growth for this year & next. The S&P 500 is forecast, on average, to remain about flat this year, finishing at 3989 but rise next year to 4335. The benchmark closed yesterday at 3966.
Most investors, economists see rate hikes causing a recession, CNBC survey shows
Shares of United Parcel Service (UPS) fell after the company said higher rates offset lower-than-expected delivery volumes in Q2. The
company said volumes declined & fell short of its
forecast by 222K packages per day. It attributed the miss partially
to reductions in its contracts with customers like Amazon (AMZN). “We
project by the end of this year that Amazon revenue will be less than
11% of our total revenue,” said CEO Carol B Tome, noting that UPS
agreed to a level that makes sense for it & will give the company room
to grow in other areas. UPS stood by its full-year financial outlook after posting earnings & revenue that topped expectations. For the qtr, the company reported adjusted EPS of $3.29, which was more than the $3.16 expected. Revenue for the period was $24.8B, also topping the $24.6B expected. The strong $ hurt UPS intl business, reducing intl revenue by $261M profits by $60M. For H2, CFO Brian Newman said
that the company anticipates that volume growth rates “will improve
slightly” with full-year GDP growth expected to slow. The company reaffirmed its outlook for full-year revenue of $102B adjusted operating margin of about 13.7%. The stock fell 6.46 (3%).
If you would like to learn more about UPS, click on this link:
club.ino.com/trend/analysis/stock/UPS?a_aid=CD3289&a_bid=6ae5b6f7
UPS shares fell after the company reported lower-than-expected delivery volumes
McDonald’s (MCD), a Dow stock & Dividend Aristocrat, said both price hikes & value items fueled US same-store sales
growth, which was higher than expected during Q2. However, CEO Chris Kempczinski said the environment is still “challenging” as inflation & the war in Ukraine weighed on its quarterly results & consumer sentiment. “We
now face war in Europe, inflation is running at the highest levels in
40 years, interest rates are rising to levels we haven’t seen in years.
All of this is contributing to weak consumer sentiment around the world
and the possibility of a global recession,” Kempczinski added. Q2 EPS was
$1.60, down from $2.95 a year
earlier. The company reported a $1.2B charge related to the sale of its Russian business due to the war in Ukraine. Excluding that charge, a French tax settlement & other items, the fast-food giant EPS was $2.55. Inflation
dragged down earnings, despite price hikes. For the full
year, MCD is projecting 12-14% inflation for food &
packaging in the US & even higher levels in Europe. Execs said
US inflation topped that level in Q2 & will likely
surpass it in Q3 before moderating in Q4. Net sales fell 3% to $5.7B, hurt in part by the closure of McDonald's Russian & Ukrainian restaurants. Global
same-store sales rose 9.7% in the qtr, fueled by strong
intl growth. Russian locations were excluded from the company's
same-store sales calculations, but Ukrainian restaurants were included. US same-store sales increased 3.7% in the qtr, topping
estimates of 2.8%. The company credited strategic price
hikes & its value offerings for its strong performance. The stock rose 6.46 (3%).
If you would like to learn more about MCD, click on this link:
club.ino.com/trend/analysis/stock/MCD?a_aid=CD3289&a_bid=6ae5b6f7
McDonald’s says higher prices, value items helped boost U.S. sales
Gold prices ended lower, pressured by strength in the $ a day ahead of the Federal Reserve's much anticipated decision on interest rates. Gold prices for Aug lost $1 to $1717 an ounce after posting a decline of 0.5% yesterday. Gold pulled back as the $ retook some of the ground it lost last week. The ICE US Dollar Index was up 0.7% at 107.19 today. The technical underpinning the gold market doesn't look very encouraging. Gold needs to overcome heavy resistance at the $1745 an ounce triple top before the gold bugs can really start to get excited. It has support at $1680.
Gold ends lower for second day as dollar rebound constrains gains
Natural-gas futures climbed today to settle at their highest since Jun 7. Prices continued to find support after reports that Russian state-owned energy producer Gazprom's natural-gas exports thru the Nord Stream pipeline to Germany would drop by ½. Aug natural
rose 27¢ (3.1%) to settle at $8.993 per M
British thermal units. Sep
West Texas Intermediate crude,
meanwhile, fell $1.72 (1.8%) to settle at $94.98 a barrel. Mounting recession worries are currently trumping how tight the
physical crude market remains.
Natural-gas futures end at a 7-week high; oil prices finish lower
Sellers came in the PM & took command of the stock market. With the news coming during the rest of the week, highlighted by the Fed tomorrow & GDP on Thurs, the bulls have gone into hiding. The UPS business is very important because it is sensitive to the pulse of the US economy. And MCD, which buys a lot of food, suggests high inflation will be around for some time. Grrrr!!
Dow Jones Industrials
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