Stocks started August on shaky footing, with markets struggling to find direction following their best month since 2020.
Much of last week's gains came on the heels of well-received tech earnings. And while the earnings calendar heats up later this week, the main focus on Monday was economic data. Namely, the Institute for Supply Management's purchasing managers' index (PMI) – a measure of factory activity in the U.S. – fell to 52.8 in July from 53.0 in June.
"Manufacturing was still expanding in July, but at the slowest rate in over two years," says Jeffrey Roach, chief economist for independent broker-dealer LPL Financial. "As demand slows and supply bottlenecks improve, we should expect a corresponding slowdown in inflation during the back half of this year."
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Separately, the Commerce Department released data this morning that showed construction spending fell 1.1% month-over-month in June – due in part to a 3.1% drop in single-family homes (the largest one-month drop in this metric since the start of the pandemic). Economists had been expecting a 0.4% increase.
While markets spent most of the morning in positive territory, they turned lower around lunchtime – dragged down by the energy sector, which slumped 2.1% as U.S. crude futures plummeted 4.7% to $93.95 per barrel.
By the close, the Dow Jones Industrial Average was off 0.1% at 32,798, the S&P 500 Index was 0.3% lower at 4,118 and the Nasdaq Composite had given back 0.2% to end at 12,368.
Other news in the stock market today:
- The small-cap Russell 2000 slipped 0.1% to 1,883.
- Gold futures rose for a fourth straight day, gaining 0.3% to settle at $1,787.70 an ounce.
- Bitcoin shed 4% to $22,956.73.(Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
- Boeing (BA) was the best Dow Jones stock today, adding 6.1%. The surge in share price came amid media reports indicating the Federal Aviation Administration (FAA) on Friday said it would approve the company's plan to fix issues on planes before they are sent to customers. This will allow BA to resume deliveries of its 787 aircraft, which have been halted since May 2021.
- Target (TGT) jumped 1.3% after Wells Fargo analyst Edward Kelly upgraded the retail stock to Overweight from Equal Weight (the equivalents of Buy and Hold, respectively. "TGT's sell-off provides the opportunity to pick up a proven share gainer into an underappreciated earnings recovery at the right price, in our view," Kelly says. While the company deserves criticisms for its inventory missteps, it "took the earliest and biggest margin hit in retail, suggesting relatively lower risk from here and a faster recovery," he adds.
How to Prepare Your Portfolio for a Recession
Are we in a recession? That's the question that's been bouncing around since data released from the Commerce Department last Thursday showed the U.S. economy contracted for a second straight quarter in Q2.
While that meets the unofficial criteria for a recession, the official judge is the National Bureau of Economic Research – and they have yet to chime in. Still, plenty of experts have, including Cliff Hodge, chief investment officer for Cornerstone Wealth, who is pushing back on the notion that the U.S. economy is in a recession. "Personal consumption grew for the eighth straight quarter [in Q2]," he says. "Looking at the gains in spending alongside continued strength in payrolls, it's really difficult to call what we’re experiencing right now a recession."
So what does this mean for investors? Opportunity, says Kiplinger columnist James K. Glassman, who recently put together a tidy primer on how to invest for a recession. While we won't know for certain until the NBER makes the official call, there are plenty of areas of the market that are priced as if there will be one – and that presents an opportunity for investors. Take a look.
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