U.S. stocks are trading lower as another week begins on the heels of six-straight weekly losses for the S&P 500. Conviction toward the equity markets remains hamstrung by a plethora of concerns, chief among them being an aggressive Fed tightening campaign and persistently elevated inflation pressures. Concerns about slowing economic growth also has weighed on sentiment and the markets are digesting softer-than-expected April retail sales and industrial production out of China, and an unexpected drop into contraction territory for New York manufacturing output in May. M&A news is dominating the headlines, with JetBlue launching a hostile takeover of Spirit Airlines, and Carlyle Group agreeing to acquire ManTech International in a transaction with a total enterprise value of about $4.2 billion. Treasuries are higher to cool off the recent jump in yields, and the U.S. dollar is little changed after rallying to 20-year highs. Crude oil and gold prices are gaining ground. Asia finished mixed with China dipping on the data, and Europe is also diverging amid the host of headwinds, while the ongoing war in Ukraine is exacerbating the skittishness.
As of 10:56 a.m. ET, the Dow Jones Industrial Average is down 0.5%, the S&P 500 is declining 0.7%, and the Nasdaq Composite is dropping 1.3%. WTI crude oil is rising $0.84 at $111.33 per barrel, and Brent crude oil is advancing $0.39 at $111.94 per barrel. The gold spot price is trading $3.50higher to $1,811.70 per ounce, and the Dollar Index is little changed at 104.58.
In M&A news, JetBlue Airways Corporation (JBLU $10) launched a hostile takeover of Spirit Airlines Inc. (SAVE $19), offering $30.00 per share tender offer for the company, valuing it at about $3.3 billion. The offer comes as Spirit rejected a recent JetBlue offer of $33.00 per share, in favor of a previously agreed upon $2.9 billion deal to be acquired by Frontier Group Holdings Inc. (ULCC $9). JetBlue said it would be willing to re-offer the $33.00 per share for the company if Spirit negotiates with it in good faith, subject to receiving necessary diligence. JetBlue also urged Spirit shareholders to "vote no" on the "inferior, high risk, and low value" Spirit/Frontier transaction at its upcoming special meeting. SAVE is trading nicely higher, and ULCC is also rising, while JBLU is trading lower.
In other M&A news, Carlyle Group Inc. (CG $37) announced an agreement to acquire national security program solutions company ManTech International Corporation (MANT $94) for $96.00 per share in cash, in a transaction with a total enterprise value of about $4.2 billion. MANT is rallying over 10.0%, and CG is trading lower.
Carvana Co. (CVNA $40) is rising after the company late Friday laid out its operating plan in light of the current industry, macroeconomic, and financial market environment that has seen its stock fall nearly 88.0% even after today's gains. The online platform for used vehicle sales said it is focusing on three areas: growing retail units and revenue, increasing total gross profit per unit (GPU), and demonstrating operating leverage. The company added that it is elevating selling, general & administrative (SG&A) expense leverage, profitability, and positive free cash flow as priorities.
The markets remain choppy as they grapple with the ultimate implications of persisting inflation pressures and expectations of an aggressive Fed monetary policy tightening campaign. Schwab's Chief Investment Strategist Liz Ann Sonders, along with Chief Fixed Income Strategist, Kathy Jones, and Chief Global Investment Strategist, Jeffrey Kleintop, CFA, discuss the volatile market action in our latest Schwab Market Perspective: Downshifting.
They note how the markets have become more volatile as economic growth slows and investors worry that the Federal Reserve will overshoot in its effort to control inflation, potentially raising interest rates sharply enough to tip the economy into recession. If the Fed sticks to the plan its officials have been suggesting, it will be one of the most aggressive rate-hiking cycles in recent history. Meanwhile, international stocks outperformed U.S. stocks as yields climbed and investors sought out stocks with more immediate cash flows, which tend to be more prevalent overseas. You can follow Liz Ann, Kathy and Jeff on Twitter: @LizAnnSonders, @KathyJones, and @JeffreyKleintop.
Read all our market commentary, including our latest article, Stock Market Volatility: Schwab's Quick Take, on our Market Insights page, and you can follow us on Twitter at @SchwabResearch.
New York manufacturing drops, kicking off the week, consumer and housing set to be in focus
The Empire Manufacturing Index, a measure of activity in the New York region, showed the index unexpectedly fell back into a level depicting contraction (a reading below zero) last month. The index dropped to -11.6 in May from 24.6 that was posted in April and compared to the Bloomberg estimate of a decrease to 15.0. The disappointing report came as new orders and shipments both fell below zero, and the expansion in inventories slowed, along with prices paid but inflation pressures remained severely elevated. However, employment growth accelerated after the prior month's slowdown.
Treasuries are higher and yields have been choppy as of late following a recent spike as markets anticipate tighter Fed monetary policy following the early May 50 basis point (bp) rate hike, which Schwab's Liz Ann Sonders discusses in her article, 50 Ways to Leave Your Mark.
As the Fed launches a series of rate hikes to try to cool off inflation, check out the latest offering from Schwab's Director of Fixed Income Collin Martin and Director of Fixed Income Strategy Cooper Howard titled 8 Questions on the Bond Market and Rate Hikes, where they provide their insight into some of the most frequently asked questions they have received this year.
The yield on the 2-year Treasury note is down 4 bps to 2.55%, the yield on the 10-year note is declining 7 bps to 2.86%, and the 30-year bond rate is decreasing 3 bps to 3.06%.
This week, earnings season will wind down with some major retailers putting on the finishing touches, and the economic calendar will deliver a few data points that could move the markets. Tomorrow's April retail sales report will likely garner the most attention, while the housing market will also command interest given how affordability concerns have jumped amid the continued surge in home prices and recent spike in interest rates. Some key housing releases include, the May NAHB Housing Market Index, along with April reads on building permits and housing starts, and existing home sales. Initial jobless claims for the week ended May 14, and the Leading Index for April are some other reports worth paying attention to. Fedspeak will continue, which the markets could highly scrutinize, headlined by Chairman Jerome Powell's participation in a Wall Street Journal event, and notorious hawk St. Louis Fed President James Bullard.
Europe mixed following China data and as headwinds remain
European equities are mixed in late-day action to kick off the week amid festering uncertainty and uneasiness regarding monetary policy tightening implications after recent rate increases out of the U.S. and the U.K. Moreover, the recent rise in interest rates, and the U.S. dollar, coupled with signs of slowing economic growth that have been exacerbated by COVID-induced lockdowns in China remain sources of uncertainty in the region. Persistent inflation pressures that have been amplified by the ongoing war in Ukraine and the ensuing surge in energy and food prices, have forced central banks to tighten monetary policies. Bond yields in the Eurozone are mixed and rates in the U.K. are adding to recent gains and Schwab's Jeffrey Kleintop offers his latest commentary, Hedging Stocks Against Rising Rates. Jeff notes how investors should consider hedging the possible risk of higher interest rates with the addition of short duration stocks, a potential way to manage risk while remaining invested in the markets. In economic news, German wholesale inflation cooled month-over-month in April to a 2.1% increase, from the prior month's 6.9% gain, though the year-over-year (y/y) pace rose to 23.8% from March's 22.6% increase. Additionally, the Eurozone trade deficit widened solidly but slightly less than expected for March. The euro and British pound are little changed versus the U.S. dollar.
The U.K. FTSE 100 Index is up 0.4%, France's CAC-40 Index is down 0.5%, Germany's DAX Index is declining 0.8%, Italy's FTSE MIB Index is dipping 0.1%, Spain's IBEX 35 Index is little changed, and Switzerland's Swiss Market Index is trading 0.4% to the upside.
Asia mixed a volatility remains, China slips following data
Stocks in Asia finished mixed to begin the week, with the global markets looking to resume volatile action amid the backdrop of tightening monetary policies in the U.S. and Europe, the recent rally in the U.S. dollar, rising interest rates, the ongoing war in Ukraine, and signs of slowing economic growth. The markets did get some reprieve late last week as China indicated that COVID-related lockdowns, which have exacerbated the global economic uneasiness, could soon ease. Meanwhile, the markets digested some disappointing Chinese economic data, which showed April retail sales and industrial production both fell more than expected year-over-year (y/y). Schwab's Jeffrey Kleintop discusses in his latest article, Recession in China?, how China's economy and consumer market has likely slipped into a recession, at least by China's standards. Jeff takes a look at the short-term and long-term impacts of any extended disruption of the lockdowns on consumer spending and business output. In other economic news, Japan's machine tool orders for April preliminarily slowed to a 25.0% y/y pace of growth, from the prior month's 30.0% gain.
Japan's Nikkei 225 Index rose 0.5%, with the yen holding onto last week's gains that trimmed a recent drop versus the U.S. dollar, but China's Shanghai Composite Index dipped 0.3%. The Hong Kong Hang Seng Index, Australia's S&P/ASX 200 Index, and India's S&P BSE Sensex 30 Index all increased 0.3%. Finally, South Korea's Kospi Index traded 0.3% to the downside.
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