Stocks Plunge Monday as Recession Fears Grow Ahead of Fed Rate Decision

June 13, 2022 -

Stocks plunged Monday as traders continued to digest Friday’s CPI report that showed consumer prices rise more than expected in May. The S&P 500 entered bear market territory, down 20% from its 52-week high as the index claimed a new 52-week low.

Cryptos had the worst of it though, falling over the weekend and then plummeting Monday. Bitcoin fell as low as $22,827 as the crypto market lost 13%. Celsius is crypto's latest scare following the downfall of the Terra Project after the crypto lender paused withdrawals, swaps, and transfers over the weekend as speculation over its lofty promises for APY as high as 17% mount.

Looking ahead to this week, the Federal Reserve will headline a busy week of economic reports with its June rate decision. The Producer Price Index (PPI) will have the potential to calm some nerves regarding inflation Tuesday and Retail Sales will tell us a bit more about the state of the consumer following last Friday’s historically low sentiment reading.

Also being watched this week is an update on Housing Starts, Building Permits, and weekly jobless claims.

The Fed

The Federal Reserve will release its rate decision for June on Wednesday afternoon following the conclusion of the Fed meeting.

This meeting will be sticky because, following the underwhelming CPI report, the “expected” 50 basis point rate hike to an annualized rate of 1.375% has become much less expected as many now view that the report forced the Fed to have to pursue a more aggressive path to bringing inflation under control.

Following the report, Barclays and Jefferies raised their forecasts to 75 basis points, while Steven Englander of Standard Chartered Bank is putting a 10% chance of a full 100-basis point hike.

With ambiguity in market expectations, it could make it hard for the market to have or maintain a positive reaction to the report since what some will call too high, others will call not high enough.

This will make Fed Chair Jerome Powell’s remarks following the report pivotal as traders will now need more convincing that the hike made was the right call.

Producer Prices

The Producer Price Index is due Tuesday morning and is expected to show producer prices rise to a monthly rate of 0.8%.

The previous PPI report showed moderation in the year-over-year rate. The PPI report will have a chance to compound or quell some inflation worries as price increases to producers get covered by either declining margins for the company or by raising prices for consumers.

With the pace expected to have increased during the month, it seems unlikely that we will get a report that shows further moderation, however, a "better-than-feared" rise could help boost sentiment ahead of the Fed meeting.

Sales

Retail Sales will be an interesting report Wednesday morning, as it follows on the heels of a record-low reading on the University of Michigan’s Index of Consumer Sentiment last Friday.

Consumer expectations fell as an increasing amount of people pointed their fingers toward inflation for their increasingly negative outlook.

With sentiment hitting a low, it’ll be interesting to see the latest round of retail sales figures as, given that the savings rate continues to decline, it could tell us if we are nearing a line with consumers where they will stop taking out of savings and start taking out of discretionary spending.

Anything that suggests that we aren’t quite at that point yet would be a plus as it buys a little more time for inflation to slow and moderate.

Economic Events this Week

Tuesday

- 06:00 ET - NFIB Small Business Optimism

- 08:30 ET - Core PPI

- 08:30 ET - PPI

Wednesday

- 08:30 ET - Retail Sales

- 08:30 ET - Retail Sales ex-auto

- 10:00 ET - NAHB Housing Market Index

- 10:30 ET - EIA Crude Oil Inventories

- 14:00 ET - FOMC Rate Decision

Thursday

- 08:30 ET - Building Permits

- 08:30 ET - Continuing Claims

- 08:30 ET - Housing Starts

- 08:30 ET - Initial Claims

Friday

- 09:15 ET - Capacity Utilization

- 09:15 ET - Industrial Production

Earnings Reports This Week

Monday:

After the bell: ORCL

Tuesday:

Before the bell: CNM

After the bell: CXM

Thursday:

Before the bell: CMC, JBL, KR

After the bell: ADBE, TCOM