Stock market starts trading week with Bloodbath – June 13, 2022


Stocks are off session lows as of Monday’s close, but that’s literally the only positive thing we can say about it. Bearish trading volume reached an incredible 98% in one of the deepest “buyer strikes” we have ever seen. The Dow closed -875 points (briefly triggering the quadruple digits 10 minutes before the bell), -2.79%, the S&P was -3.87%, the Nasdaq -4.68% and the Russell 2000 -4, 89%.

About an hour before the end of the regular trading session, a scoop of the the wall street journal sent stocks lower at an even more heartbreaking pace: apparently the Fed is now eyeing a 75 basis point (bp) rate hike this week. Until a few trading days ago, it was considered a done deal that 50 basis points would be the maximum.

As you probably already know, Fed members are entering a “blackout period” a week and a half before another monetary policy meeting. This means that when Friday’s Consumer Price Index (CPI) report was released, neither Fed Chairman Powell nor any other member was allowed to make a public statement as to whether if there had been a change in consideration regarding the Fed fighting very high and stubborn inflation with a higher rate. hikes.

Some market participants would like the Fed to be even more aggressive than a mere 75 basis point hike – up to a full percentage point on Wednesday – in order to really kickstart inflation. Given the cautious and methodical nature of Powell’s tenure, however, that’s not very likely; the debate by Wednesday afternoon on whether the Fed will stay at 50 or drop to 75.

Also, the bigger the interest rate jolt — and 75 basis points is already a doubling of the federal funds rate — the higher the chance of putting the US economy on a path to recession. This has long been the enigma of the Fed, due to its slowness in monetary policy, which a plurality of fund managers hoped to see a year ago.

That said, another -3-5% beating – after shellacking -5% from the previous two sessions last week – looks set to be a clear recession at today’s close. The Nasdaq is back to -33% from its early Nov 21 highs; the S&P is -22%. There is no reasonable way to look at this bloodbath and see anything other than a bleak outlook for the economy in the short to medium term.

Want good news? Oracle (ORCL Free report) released fiscal fourth quarter earnings results, and the software giant posted a strong performance on both revenue and net income: earnings of $1.54 per share beat consensus from Zacks of $1.38 and exactly matches the quarterly figure a year earlier, while revenue of $11.84 billion jumped well ahead of the $11.65 billion expected.

Even better, it was Oracle’s cloud space driving the business – kind of a question mark in quarterly results with so much competition in the space these days. Not only does Oracle seem to have followed the Joneses, but it would appear that corporate investment in cloud computing is pretty robust overall, which is entirely inconsistent with a nascent recession on the horizon.

Oracle shares jumped +9% on earnings release before moderating a bit late in the session. The shares had already fallen -27% year-to-date, but in our current climate, that makes it a market leader for the tech industry. Oracle has not released guidance for the upcoming quarter and year; look for this on the conference call on hold.

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