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U.S. stocks traded mixed Wednesday morning, with equities struggling for direction as the risk of a recession remained top of mind for many investors.
The S&P 500 opened in slightly positive territory after fluctuating between small gains and losses during the pre-market session. The Dow Jones Industrial Average moved slightly higher, and the Nasdaq Composite turned lower shortly after opening in the green.
Crude oil prices held below $100 per barrel after falling below that threshold for the first time since mid-May on Tuesday, as investors increasingly bet that a downturn might weigh on demand for energy. Bitcoin prices rose back above $20,000. And Treasury yields climbed across the curve, though the benchmark 10-year yield edged just above 2.82% to hover near its lowest level in about six weeks.
Prospects of a deep economic downturn have stoked ongoing volatility in markets, as investors weigh whether inflation and a more aggressive Federal Reserve tightening cycle will curb growth to the point of tipping the economy into a recession. And some key economic data, from consumer sentiment to spending and purchasing managers’ indices, have each softened or turned lower in recent prints.
“A broad-based slowdown in overall consumer spending has already been underway this year, led by deterioration in the goods category, with services providing little in the way of offset,” Barclays’ Jonathan Miller wrote in a recent note. And as sentiment indexes from the Conference Board’s Consumer Confidence Index to University of Michigan Surveys of Consumers decline, he added, that “may indicate that a more precautionary mindset might be setting in, which would make households more inclined to hoard excess savings accumulated during the pandemic.”
Whether — and if so, when and how deeply — a recession takes hold has become a key question for market watchers and has left the stock market languishing in a bear market.
“For the last several months, the market’s been watching the economy choke on inflation,” Matt Kishlansky, GenTrust Head of Asset Allocation, told Yahoo Finance Live. “There’s really no consensus between the stock market and the bond market as to what we do in the interim and where we’re headed.”
In the bond market, the 10-year Treasury yield has slid from a more than decade high of over 3.4% in mid-June to below 2.9%. And Fed Funds futures have shown investors are now pricing in a lower terminal rate for the Federal Reserve — or the rate at which the Fed will stop hiking short-term interest rates — than they were just a couple weeks ago.
“So if you try to reconcile those two numbers, the bond market’s telling you that before the ink is even dry on the last interest rate hike, the Federal Reserve is going to have to start cutting rates in order to deal with the economic fallout from those rate hikes,” Kishlansky added. “[The] bond market’s, in essence, saying that a recession is a fait accompli at this point. The stock market’s not so sure.”
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