📉 Sell-off gets real

Plus: About-face | Tuesday, June 14, 2022

Open in app View in browser   Presented By THE NORTHERN TRUST INSTITUTE   Axios Markets By Matt Phillips and Emily Peck · Jun 14, 2022 📉 Hard times in stonksville. Matt explains all. Let's get into it. Join Axios' Alexi McCammond and Aja Whitaker-Moore tomorrow at 12:30pm ET for a virtual event examining the post-pandemic path forward for Black women in business. Guests include chair of the Council of Economic Advisers Cecilia Rouse and Black Ambition CEO Felecia Hatcher. Register. 🎧 Listen: Emily joins "Axios Today" to discuss rising food costs. Today's newsletter, edited by Kate Marino, is 1,049 words, 4 minutes.     1 big thing: What the stock market is saying Illustration: Aïda Amer/Axios   Companies whose financial fortunes mirror the ups and downs of the actual economy led the market plunge into bear market territory yesterday, Matt writes. Why it matters: The growing sell-off in so-called cyclical stocks — which until recently have held up reasonably well — suggests that investors are entering a new phase of concern about the economy. Driving the news: The S&P 500 fell 3.9% yesterday, its worst daily drop since May 18, when it slumped 4%. That pushed the benchmark index down 21.8% from its Jan. 3 high, confirming stocks have been mired in a bear market almost all year. Yes, but: The drop was even uglier for ... Small-cap stocks: The Russell 2000 index of smaller stocks got smoked, falling 4.8%, its worst day since June 2020 during the heat of the COVID crisis. Stocks in this index tend to be more closely reliant on the health of the U.S. domestic economy than the global giants in the S&P 500, which have customers worldwide. Energy stocks: Energy stocks, which have been the star performers of the stock market this year as oil and gas prices have soared, saw the worst losses in the S&P yesterday, dropping 5.1%. This suggests investors now believe the Federal Reserve's effort to slow the economy and curtail inflation will work — though likely at the cost of a sharp slowdown in the economy and rising unemployment that will force consumers to consume less fuel. Travel and entertainment: Casinos, airlines, cruise lines and booking services all slumped hard, as the expectations of a consumer slowdown grow. State of play: Some companies did slightly better, but they were firms that tend to fare well in a recession when Americans tighten their financial belts. They include peanut butter & jelly giant J.M. Smucker Company, McDonald's, Coca-Cola and dirt-cheap retailer Dollar Tree (see below). The bottom line: In isolation, the meanderings of the stock market don't tell you a lot about the economy. But the official arrival of a bear market comes along with a Fed intent on raising rates fast and a historic energy shock. Taken together, it all adds to evidence suggesting the next year is going to be a tough one for the U.S. economy.     2. Charted: All about the Dollar (Tree) Data: FactSet; Chart: Axios Visuals Dollar Tree is in, Target is out, Matt writes. Why it matters: The diverging direction of a couple of key consumer stocks shows how investors foresee tougher times ahead for American households. That would benefit retailers with rock-bottom prices (like Dollar Tree), which tend to gain business during downturns. The big picture: While these are just two stocks, we've seen a sudden move away from consumer stocks that rely on discretionary spending this year. The S&P 500's consumer discretionary sector is the worst-performing part of the S&P 500, down more than 33% in 2022 while the overall index shed 21%. The discretionary sector includes a wide swath of companies that rely on people's optional spending — like airlines, cruise companies, casinos, and even homebuilders.     3. Catch up quick 🇨🇳 Biden leans toward easing some of Trump's China tariffs. (Axios) ⬇️ Bitcoin plunges as crypto lender blocks withdrawals. (AP) ⛽️ Record cost of diesel fuel courses through U.S. economy. (FT)     A message from THE NORTHERN TRUST INSTITUTE Create value from values     Do ESG investments deliver on their promise? Investors worry about sacrificing returns or whether their investments will make a difference. Okay, but: Northern Trust can build a plan that reflects your values and achieves what's most important to you. Learn how.     4. The once-unthinkable rate hike The Fed's building in Washington. Photo: Joshua Roberts/Getty Images   The Fed could respond to the surge in inflation with its steepest interest rate increase since 1994, Axios' Neil Irwin writes. At its policy meeting tomorrow, the central bank may opt to raise rates by 0.75 percentage points, rather than the half-point that has been signaled for weeks. Why it matters: If the Fed opts for the more aggressive move, it would amount to stepping away from the slow-and-steady rate rising campaign, and an escalation of the central bank's war against inflation — one that is already causing steep drops in asset prices and rising recession risk. Such a move would diverge from the Fed's practice in recent years: only taking policy moves that have been telegraphed far in advance to avoid unnecessarily disrupting markets. The backdrop: The news around inflation has worsened even since the Fed entered its customary "blackout period" 10 days ago when officials don't give speeches or interviews discussing monetary policy in the run-up to a policy meeting. Most significantly, the Consumer Price Index for May, out this past Friday, far exceeded expectations, with a broad-based surge in prices. State of play: The steeper rate hike will be on the table at the Federal Open Market Committee meeting starting Tuesday afternoon, with a real possibility of pulling the trigger. The decision will be announced at 2pm ET Wednesday. Another option would be for the central bank's policy committee to proceed with a half-percentage point rate increase that has been signaled in the past, but give an explicit indication that 0.75 percentage point rate hikes will be on the table in future meetings. The bottom line: More so than at any Fed policy meeting in recent memory, what the central bank will do this week seems like an open question. Go deeper.   Share Axios and earn rewards If you like this newsletter, your friends may, too! Refer your friends and get free Axios swag when they sign up. Be a good friend and share   5. Workers with criminal records getting a chance Data: Indeed; Chart: Axios Visuals More employers are proactively saying that they'll give candidates with criminal backgrounds or arrest records a "fair chance," the common phrase for such a practice. Why it matters: All the stock market angst isn't yet seeping into the job market where most employers (with the possible exception of tech companies) are still desperate to hire, Emily writes. That means more workers who are usually sidelined or, let's face it, openly discriminated against, are getting pulled into the workforce. Driving the news: 2.5% of job listings on Indeed now advertise "fair chance" hiring, according to an analysis conducted by AnnElizabeth Konkel, an economist at the job site's Hiring Lab. That's up from just over 1% in early 2018 — though down a bit from a high of 3.1% in April. "Fair chance" listings were defined by Indeed as those including that phrase, plus ones like "no background check" or "felon friendly." Flashback: I wrote back in March about how the tight labor market had led some employers to loosen the way they do criminal background checks, something civil rights advocates have wanted for years. Pulling in these workers also helps companies keep wages down. The bottom line: "Employers are at least warming a bit to considering this group," Konkel tells Axios. "Especially as they are really trying to figure out different ways to attract the workers that they need."     A message from THE NORTHERN TRUST INSTITUTE Prices, policy and portfolios — your questions answered     Protect your portfolio against inflation with answers to common investor questions. The impact: Better understand the impact of inflation and how to fortify your portfolio and wealth plan in the face of uncertainty. Start learning now.   🍒 1 thing Emily loves: Cherries!! Kids love summer because no school. Fancy rich-people types might love it because they have a beach house. But I love this time of year purely for the fruits. Berries, stone fruit, watermelon...It's all happening! At the moment, I'm into cherries. They have just the right burst of sweet and tart to keep me fueled through Kate's edits. But in a few weeks, blueberries will absolutely take over my life. We have bushes in our front yard here in New York. Do you all feel similarly? What's your summer fruit of choice? Reply and tell us. Like this email style and format? It's called Smart Brevity®. Over 200 orgs use it — in a tool called Axios HQ — to drive productivity with clearer workplace communications.   Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here. Sponsorship has no influence on editorial content. Axios, 3100 Clarendon B‌lvd, Arlington VA 22201   You received this email because you signed up for newsletters from Axios. Change your preferences or unsubscribe here.   Was this email forwarded to you? 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