The S&P 500 ended down by 0.4% Tuesday, at 3,735.48, ending a fifth consecutive day of losses and remaining in bear territory at more than 20% below its January high. The Nasdaq composite managed to cling to gains of 0.2%, leaving the index at 10,828.35, as the Dow dropped 150 points, ending 0.5% lower at 30,364.83.
Benchmark 10-year Treasury note yields rose to 3.4%, an 11 year high. The 2-year note added to gains, to also reach its highest point since 2007. US WTI Crude passed $122 per barrel again, as Bitcoin hung under pressure at just over $22,000.
CME group data shows traders now pegging the likelihood of a 0.75% rate increase at the next Federal Open Market Committee meeting to be 90%. Going forward, now that the market has accepted and priced in that rate, it is hoped the volatility from Monday’s session following the Interest rate report Friday should subside. The FOMC begins its two day meeting on Tuesday, with a press conference to announce the decision on a rate hike, from Federal Reserve Chair Jerome Powell, scheduled for Wednesday at 2PM in Washington.
Previously the Fed had indicated that its plan was two 0.5% rate hikes in June and July, and then a reversion to 0.25% rate hikes in the fall based upon economic conditions showing a cooling economy.
Paul Ashworth, chief North America economist at Capital Economics, wrote in a note, “Instead, the monthly gains in core CPI accelerated back to 0.6% in both April and May, suggesting that price pressures are broadening.” Now a .75% rate hike is expected at the next meeting, and the likelihood is a more aggressive policy will continue after that until the Fed sees hard evidence the economy has cooled inflation is under control, and there will be no more surprise reports.
On Tuesday the Bureau of Labor Statistics also released the Producer Price Index, charting the cost to produce products, which showed a 10.8% jump in May year over year, following the 10.9% jump in April. Two thirds of the May jump came from the increase in final demand goods prices which includes energy, which jumped 5% month over month.
The latest NFIB Small Business Optimism survey was also released Tuesday. It showed business owners rated inflation the top problem they faced. The portion of business owners who reported having to raise their own prices due to inflation, matched the record high in the 48 year old survey’s history.
Among gainers, FedEx had a banner day after raising its dividend, announcing it will tie executive compensation to shareholder returns, and adding two new board members. These were all concessions in response to pressure from activist investor D.E. Shaw, which traders liked to see. FedEx was up as much as 15.6% intraday.
Oracle was up over 10% after beating earnings and sales estimates in a Monday report.
