Economy

Stocks decline as US economy begins to show cracks

June 4, 2024
Scout Titterington

US stocks opened lower on Tuesday as investors awaited signs that the US economy’s surprising resilience may be starting to show cracks.

The S&P 500 (^GSPC) fell 0.3% while the Nasdaq Composite (^IXIC) fell 0.2% after both indexes closed higher in the previous session during a bumpy day. The Dow Jones Industrial Average (^DJI) rose just above the flat line.

Stocks have struggled to find their footing as investors face a dilemma over the path of interest rates. Recently Manufacturing data is weak Wall Street strategists have been pushed to reduce their optimism about economic growth, which supports the idea of ​​lowering interest rates. But Fed officials have cautioned against hoping for a turnaround anytime soon while they wait for inflation to cool enough — and it’s not clear when that time will come.

All eyes will be on April jobs numbers due later Tuesday for further clues on how the economy is holding up, with factory orders and durable goods also on the agenda. The labor market update is a lead-in to Friday’s crucial May jobs report – the highlight of the week’s data.

Read more: How does the labor market affect inflation?

Meanwhile, GameStop’s (GME) rally — just one part of a volatile start to the summer for stocks — lost steam on Tuesday, in the wake of a 21% rally for the darling meme. Shares of the video game retailer fell about 2% during the morning session.

Elsewhere, India’s stock index fell, shedding nearly $35 billion in value, after hitting all-time highs on Monday. The counting of votes in the country’s national elections has put Prime Minister Narendra Modi’s ruling party’s majority in doubt, although opinion polls show a likely landslide victory.

He lives7 updates

  • Job opportunities fall to their lowest level in more than three years

    Job openings fell in April to their lowest level since February 2021 as the labor market shows more signs of rebalancing.

    New data from the Bureau of Labor Statistics A report released Tuesday showed there were 8.05 million open jobs at the end of April, down from 8.35 million jobs in March, which was revised down from 8.48. Economists surveyed by Bloomberg had expected the report to show 8.35 million job openings in April.

    The Job Opportunities and Labor Turnover Survey (JOLTS) also showed that 5.6 million people were employed during the month, little changed from March.

    The employment rate remained at 3.6%, unchanged from March. Also in Tuesday’s report, the quit rate, a sign of confidence among workers, was 2.2%.

  • Stocks opened lower led by a decline in the energy sector

    Stocks opened in the red on Tuesday amid growing concerns about the health of the US economy following weaker-than-expected manufacturing data.

    The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) both fell about 0.3% after closing modestly higher on Monday during a bumpy session for the three major gauges. The Dow Jones Industrial Average (^DJI) fell about 0.2% after losing more than 100 points in the previous session.

    The S&P 500 Energy Select ETF (XLE) led the declines as oil hit a four-month low on Tuesday. Traders continued to evaluate the latest production cut plan by OPEC+ amid fears of oversupply towards the end of the year. The oil alliance plans to extend most of its production cuts until 2025, but will begin phasing out additional voluntary cuts starting in October.

    Recent data shows activity slowing across a variety of measures, dampening expectations that US economic growth could accelerate for a second straight year.

    April job openings scheduled for later this morning may be another indicator of how resilient the economy is. The labor market update is a lead-in to Friday’s crucial May jobs report.

  • The obnoxious fast food business

    Fast food stocks were ice cold.

    The street has already been soured by the likes of McDonald’s (MCD), restaurant brands (QSR), and Yum! Brands (YUM) and many others in recent months amid steady inflation and new $5 price wars.

    In short, there is no catalyst to push the stock higher in the near term.

    This was confirmed this morning by EvercoreISI analyst David Palmer, who lowered his same-store sales estimates for the names mentioned above.

    I wanted to highlight two important sections of his report:

    “U.S. drive-thru chains are weakening across most income brackets, but the weakness is most pronounced with households earning less than $50,000 annually. This group benefits less from rising asset prices and suffers more from rising interest rates. Finally, it These are the consumers who suffer the most from the regressive tax of inflation itself with food costs swelling 30%+ in the age of Coronavirus combined with the rising costs of restaurant meals (more than 4x higher than meals prepared at home) to create an affordability problem. Social media scrutiny of fast food prices has increased pressure on McDonald’s, in particular.

    And the:

    “In the past, compelling value menus were often centered around a key item—often viewed by the consumer as the loss leader. These menus included the $1 double cheeseburger (McDonald’s 2003-2012), and any-size soft drinks for $1 (McDonald’s 2017 -2020), the $5 foot price (Subway), the $5 mix-and-match price (Domino’s), and the $1.50 hot dog (Costco). Today’s question – will the $5 package be enough to stabilize McDonald’s traffic, and will the food… Higher? The cost of the meal is worth it enough to keep you through the rest of the summer (or longer) If a $5 meal isn’t a long-term solution, will a $1 BOGO menu do the trick for McDonald’s in advertising effectiveness – will it benefit from the national advertising budget? For $1 billion McDonald’s Should McDonald’s be able to stabilize value traffic in the third quarter, the continued influx of new products in the second half of 2024 and 2025 should lead to a significant rebound for the brand.

  • Good point on stocks from Goldman

    I woke up to a 16-page stock research report from Goldman Sachs. Great train read.

    Good point by her team regarding stocks:

    However, given the rise in valuations, and the recent corresponding rise in investor sentiment, stocks are more vulnerable to disappointments. So far, stocks have largely ignored the delay in interest rate cuts because growth has remained resilient – cyclical sectors of advanced economies. “Major markets have outperformed defenses, leaving them vulnerable to any signs of faltering economic activity (particularly in the labor market).”

  • Citi spent time with Nvidia’s CFO

    While Nvidia (NVDA) CEO Jensen Huang gets all the attention, his longtime CFO is also important to track if you’re an investor in the name.

    Colette Chris He was Nvidia’s CFO for 10 years, and is viewed in Wall Street circles as one of the best in the game.

    City got to spend some time with her this week and came out with a note. I think what they said below (based on their meeting with Chris) is interesting, and it’s a not-so-discussed demand driver for the chipmaker.

    “Demand for sovereign AI is strong in different parts of the world. In Europe, Nvidia is seeing some work being done by countries like France, Germany and Italy, with France leading the way. The Middle East is also a region investing heavily in AI and this is the case.” Also in Southeast Asia, where Nvidia has made clear that not all investors are directly linked to the government, and some entities are only government-backed, not generally owned, entities are looking to build models based on their own characteristics.

  • Stifel call in the markets

    I have no problem with strategists who make bold decisions as long as they are rooted in reality.

    I think that’s what we got from Stifel’s Barry Bannister this morning.

    Bannister says he is looking at a 10% correction in the S&P 500 to about 4,750 points between the second and third quarters.

    Why:

    • “Flat (and slightly higher) inflation in the second half of the year, starting early in the third quarter of 2024.”

    • “The Fed will not cut interest rates in 2024, despite slowing cyclical economic growth.”

    • “The S&P 500 price-to-earnings ratio will fall by about a multiple (about 500 points) by the end of the third quarter.”

    Here’s what Stifel CEO Ron Kruszewski told me about the Fed and markets recently:

  • The bottom line on GameStop

    GameStop (GME) shares stabilized early in the day after a 21% rise (well below the 103% gain seen at the open).

    I think Steve Sosnick of Interactive Brokers said it best to me via email on the go here:

    “This cannot be explained by normal rational means.”

    Be careful here people chasing this.

    Some coverage of the GameStop mania this week from Yahoo Finance:

Correction: There was a typo in an earlier version of this article on Narendra Modi and GameStop. We apologize for the errors.

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