US stocks manage afternoon rally as Dow adds nealy 200 points

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4:10pm: Recession a “possibility,” Powell says

The Dow closed Thursday up 195 points, 0.6%, at 30,678, the Nasdaq Composite added 179 points, 1.6%, to 11,232 and the S&P 500 improved 36 points, 1%, to 3,796.

The benchmarks spent some time in the red around midday but managed to rally in the afternoon.

Federal Reserve Chairman Jerome Powell testified before Congress again Thursday, noting that a recession is a “possibility,” according to media reports. 

“The market action that we’ve seen today and yesterday at least on the internals suggests that the market is becoming increasingly concerned with the global economic growth, highlighted by the fact that the front end of the US yield curve is, the rates are going down a lot,” said Scott Ladner, chief investment officer at Horizon Investments, CNBC reported.

12.05pm: Renewed downturn in demand   

US stocks were mixed at noon as new data shows the US manufacturing sector lost growth momentum in early June – dipping to a 23-month low.

At midday, the Dow Jones Industrial Average had shed 101 points at 30,382 points and the S&P 500 was steady at 3,759 points.

The Nasdaq Composite, on the other hand, had gained 67 points at 11,120 points.

The flash S&P Global Manufacturing PMI dropped to 52.4 in June from 57 in May, below the market expectation of 56.

The flash headline PMI came in at a five-month low of 51.2, down from 53.6 in May, again falling short of the consensus analyst expectation per Bloomberg of 53.

S&P Global Market Intelligence chief business economist Chris Williamson noted that the pace of US economic growth slowed sharply in June, with deteriorating forward-looking indicators setting the scene for an economic contraction in the third quarter.

“Having enjoyed a mini-boom from consumers returning after the relaxation of pandemic restrictions, many services firms are now seeing households increasingly struggle with the rising cost of living, with producers of non-essential goods seeing a similar drop in orders,” Williamson said.

Meanwhile, recession talk continued on day two of Fed chair Jerome Powell’s Congressional testimony.

OANDA senior market analyst Craig Erlam said, slowly but surely, central banks were coming around to the idea that recessions may be the price to pay for price stability, which came across during Powell’s appearance.

“Referring to a recession as ‘certainly a possibility’, the Fed Chair appears to be edging towards waving the white flag on the economy, following in the footsteps of his peers,” Erlam said.  

“A recession is obviously not the desired outcome, but it could in theory mean interest rates not rising as much. Still not a good reason for stock markets to undergo any significant recovery though. The outlook is uncertain at best until the inflation data shows signs of improving.”

9.35am: Wall Street edges higher

US stocks opened higher on Thursday as Fed chair Jerome Powell’s Congressional testimony has entered its second day.

Just after the open, the Dow Jones Industrial Average had added 146 points at 30,629 points.

The S&P 500 was up 23 points at 3,783 points and the Nasdaq Composite had gained 99 points at 11,152 points.

Software provider Snowflake jumped about 6% at the open after the stock received an upgrade from ‘neutral’ to ‘overweight’ at J.P. Morgan.

Meanwhile, Kohl’s Corporation opened slightly lower after dropping almost 9% yesterday, following reports that Franchise Group, which is bidding to buy the department store chain, wants to lower its bid to $50 per share from $60.

6.30am: More volatility seen

US markets were expected to open mixed on Thursday as US Federal Reserve chairman Jerome Powell prepares for a second day of testimony before Congress, having already warned about the likelihood of recession on Wednesday.

Powell also said that it would be difficult to achieve a soft landing for the economy, signaling that inflation will stay elevated for the foreseeable future and denting the wider economy.

Futures for the Dow Jones Industrial Average fell 0.4% in pre-market trading, while those for the broader S&P 500 index rose 0.3%, and contracts for the Nasdaq-100 were up 0.3%.

“Market optimism couldn’t survive Jerome Powell’s testimony yesterday, as he said that a recession is possible and that a soft landing is ‘very challenging’ under the current circumstances,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“More worryingly, Powell mentioned another risk: the risk of the Federal Reserve not managing to restore price stability and allowing inflation to get entrenched in the economy,” she added.

The gloomy outlook for the world’s biggest economy took a toll on share prices as investors shied away from taking on new positions. With Powell testifying again today, investors will be hoping that most of the negative pricing is out of the way by now but there are growing fears that the Fed is losing the battle against inflation and that its aggressive rate hikes will instead crimp economic growth and dent corporate bottom lines. 

As Powell appears before Congress, his words will be up for scrutiny, suggesting that stock markets are in for another choppy session.

In energy markets, WTI crude oil futures lost 0.7% to $105.42 a barrel and Brent crude futures shed 0.6 % to $111.07, amid concerns that global economic growth may falter.

Contact the author at jon.hopkins@proactiveinvestors.com