Markets slide as investors evaluate rate outlook into second half

Dow fell 80, decliners over advancers 2-1 & NAZ was off 8.  The MLP index dipped 1 to the 286s & the REIT index was fractionally lower to the 372s.  Junk bond funds fluctuated & Treasuries saw significant selling, raising yields (more below).  Oil slid back pennies remaining below 81 & gold dropped 23 to 2307.

Dow Jones Industrials 

Walmart's (WMT) CFO warned investors that the 2nd qtr was going to be the retailer's “most challenging quarter” for the year.  He isn't alone among chief financial officers (CFOs) sounding a little down about what's taking place in the economy right now, & uncertain about what comes next.  Fears among top corp CFOs about shaky consumer demand have hit a 6-qtr higher, according to the latest CNBC CFO Council survey, with the Q2 survey the first time since the beginning of 2023 that over ½ of CFOs cited consumer demand as the biggest external risk to their business.  Consumer demand fears among CFOs have been rising in recent qtrs & match evidence from the market across sectors, with fast-food chains rushing out value menus & car dealers having more difficulty moving inventory.  The 54% of CFOs who cited consumer demand as the biggest risk is up from 18% a year ago & 37% in the last qtr.  On a recent call of CFO Council members, a financial services CFO shared data that their firm collects showing that while consumers are still traveling & eating out, the transaction values for those activities are down.  “They’re not pulling back entirely, but they’re most certainly finding less costly ways to accomplish their goals,” the CFO said.  Food sector CFOs said they are heavily focused on value right now, with one specifically invoking the term “value war.”  The quarterly CFO Council survey reflects a sampling of views from CFOs across the market & sectors, with 24 respondents included in the Q2 survey, conducted Jun 3–20.  While elevated, a cautious view of the consumer has not been uncommon among this CFO group in recent years, given their knowledge of Federal Reserve policy history & the impact of higher rates on past economies, from weak demand to layoff spirals.  Still, their current view of the Fed & the interest rate environment has not changed to as significant a degree as their view of the consumer.  The percentage of CFOs who rate the job the Fed is doing as “good” is now at its highest level ever, 70%.  But there were a few notable moves in other survey numbers related to monetary policy & the rate outlook.  Last qtr, almost ½ of CFOs forecast a 10-year yield that would dip below 4% by the end of the year.  Not anymore, with nearly 92% expecting the 10-year to remain above 4% thru Dec 31.  CFOs' overall view of the economy has slipped, but isn't dire.  1/3 of CFOs still see a soft landing ahead, but that is down from 48% who felt good about the soft landing scenario last qtr.  While that has dropped, it's still twice the level of confidence in a soft landing compared to what CFOs expected in the year-ago survey.  54% say the economy is either in a recession or will enter 1 between the 2nd ½ of this year & 2nd ½ of 2025.  When asked to choose a trend for the stock market, more CFOs are now inclined to forecast a pullback, with just under 60% saying it is more likely the Dow falls back to 35K rather than reach 45K for the first time.

Top corporate CFOs are losing some confidence in economy

Treasury yields were higher as investors considered the latest comments from Federal Reserve officials about monetary policy & awaited key economic data.  The yield on the 10-year Treasury was up by 7 basis points to 4.308% & the 2-year Treasury yield was last at 4.739% after rising by almost 5 basis points.  Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%.  Investors digested remarks from Federal Reserve officials about the US economy and the outlook for interest rates.  Fed Governor Michelle Bowman said the central bank was not ready to cut rates, saying this would only be “appropriate” when data showed that inflation is sustainably easing towards the Fed's 2% target.  Bowman also did not take further interest rate hikes off the table.  “I remain willing to raise the target range for the federal funds rate at a future meeting should progress on inflation stall or even reverse,” she said.  Meanwhile, Fed Governor Lisa Cook said she only expects little change to inflation rates this year, but sees inflation “slowing more sharply” next year.  Investors also looked ahead to key economic data due later in the week, including the personal consumption expenditure (PCE) price index on Fri.  The PCE is the Fed's favored inflation gauge & could therefore inform policymakers' thinking on expectations for the economy & the timeline for potential interest rate cuts.

Treasury yields climb as investors weigh comments from Fed

Southwest (LUV) shares fell after the carrier cut its 2nd-qtr revenue forecast, citing changing booking patterns.  LUV expects revenue per available seat mile, the amount the airline brings in for every seat it flies 1 mile, will fall 4-4.5% in the 2nd qtr over last year, after previously estimating a 1.5% - 3.5% decline.  It also said its unit expenses, excluding fuel, would be up as much as 7.5% over the year-earlier period, after previously expecting no change.  It said capacity would rise as much as 9% instead of the flat growth it had previously expected in how much it flies.  LUV still expects record quarterly operating revenue in the 2nd qtr.  Airlines are raking in record numbers of passengers but higher costs & growth in capacity have weighed on fares & profits.  “The reduction in the Company’s RASM [revenue per available seat mile] expectations was driven primarily by complexities in adapting its revenue management to current booking patterns in this dynamic environment,” Southwest said in a filing.  The stock fell 37¢.

Southwest Airlines cuts revenue forecast as booking patterns change

The stocks market was a mixed bag after popular stock indices snapped a 3-day losing streak, as investors watched for signs of life in the tech-driven rally & weighed the prospects for rate cuts.  Stocks moved lower as Treasury yields inched off 3-month lows.  A wobbly last handful of sessions has left investors wondering whether the drag on stocks is temporary or the start of a more solid retreat.  The market is looking to economic prints for cues ahead of the key PCE inflation release on Fri.  Federal Reserve speakers this week have underlined their caution in deciding to make interest-rate cuts, dependent on the data.