Stocks teeter to red as investors try to shake off recession fears

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US stocks fluctuated in choppy trading Thursday as investors attempted to shake off recession fears.

The Dow Jones industrial average rose nearly 200 points and then backtracked, trading down 120 points or 0.4 percent during the afternoon session. The S&P 500 was virtually unchanged, while the tech-heavy Nasdaq fell 0.3 percent.

The major indexes tipped into losing territory Wednesday after Federal Reserve Chair Jerome H. Powell acknowledged in congressional testimony that higher interest rates could lead to a recession, saying it is “certainly a possibility.” Last week, the Fed introduced a three-quarters of a percentage point jump, its largest increase since 1994, as part of an aggressive strategy to rein in decades-high inflation.

Fed chair acknowledges that higher interest rates could cause a recession

On Wednesday, Powell told lawmakers on the Senate Banking Committee that the Fed is determined to beat back soaring inflation. “We understand the hardship high inflation is causing,” he said. “We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so. We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses. ”

Inflation reached a new peak in May – climbing 8.6 percent year over year – signaling that the Fed’s policies to contain the soaring cost of food, fuel, housing and other necessities are not yet having a robust impact. That has shaken the confidence of both consumers and investors and underscored the growing likelihood of a recession.

Citing higher interest rates and low consumer demands, analysts at Citigroup and Deutsche Bank predicted 50 percent odds for a coming recession.

Powell will appear before the House Financial Services Committee on Thursday.

Investors have a number of economic data points to parse through. The yield on the benchmark US 10-year Treasury note plunged to 3.02 percent, its lowest in two weeks. Bonds yields move conversely to prices.

In the manufacturing and services sector, the US Manufacturing Purchasing Managers’ Index dropped to 52.4 in June compared to 57 in the prior month. The Services PMI fell to 51.6 from 53.6 in May. The index is released by S&P Global after surveying over 300 business executives.

“The survey data are consistent with the economy expanding at an annualized rate of less than 1% in June, with the goods-producing sector already in decline and the vast service sector slowing sharply,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, in a report. As hundreds of households cut back on nonessential goods and activities – such as travel and dining, producers saw the first contraction in new orders since July 2020.

Employment was curtailed because of both supply and demand challenges. The S&P Global report said that manufacturers and service providers found it difficult to hire or retain workers, while the decreasing consumer spending made employers hesitant about replacing goers.

Americans are starting to pull back on travel and restaurants

New jobless claims fell by 2,000 to a seasonally adjusted 229,000, according to new data released Thursday by the Labor Department, indicating that the number of Americans filing for unemployment benefits has remained relatively stable for the year. A widely followed proxy for layoffs, the level of jobless claims will be closely scrutinized for hints of a weakening labor market, as the Fed pursues a more aggressive monetary policy and fears of a potential recession grow.

To home buyers, the rising cost of borrowing overstretched an already dwindling housing market. Freddie Mac’s latest data showed that the weekly average 30-year fixed-rate mortgage – the most popular home loan product – rose to 5.81 percent, nearly double what it was a year ago. The combination of rising mortgage costs and high housing prices, which reached $ 428,700 on average per St. Louis Fed data, could cause a decline in sales.

“However, in reality many potential home buyers are still interested in purchasing a home, keeping the market competitive but leveling off the last two years of red-hot activity,” Freddie Mac analysts wrote.

Mortgage costs $ 128,000 more over 30 years for a $ 250,000 home

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