Following a strong showing in the equities sector last week, Wall Street was looking forward to building on this momentum. Unfortunately, with stocks down today, whatever optimism was floating about on Tuesday morning crashed back down to Earth. The main culprit was consumer sentiment plummeting to multi-year lows.
Initially, the June 28 session appeared to set itself for a solid performance. During the premarket session, several domestic equities enjoyed bullish attention. Further, when the opening bell rang, news came out that China will cut required quarantine times for travelers in half. This news strongly implies that Beijing is ready to walk back its zero-Covid-19-cases policy.
However, the mood quickly soured as The Conference Board’s consumer confidence index for June fell to 98.7 from 103.2 in May. Making matters worse, the consensus forecast among analysts was for a reading of 100. This marks the lowest tally for consumer expectations since 2013.
Lynn Franco, senior director of economic indicators at The Conference Board, provided the context, stating, “Consumers’ grimmer outlook was driven by increasing concerns about inflation, in particular rising gas and food prices.”
Essentially, the risk of a recession has spiked up, forcing many stocks down today.
Hawks in the Air
Of course, the other major implication with stocks down today is the Federal Reserve’s commitment to attacking the inflation rate. The central bank has turned hawkish this year, tightening the monetary spigot to bring consumer costs back down to reality.
Unfortunately, significant risks abound if the Fed ends up overdoing its newfound strategy. While the expansion of the money supply certainly contributed to the inflationary backdrop, the vexing quandary is that money velocity — or the rate at which each unit of currency circulates throughout the economy — runs at all-time lows.
Put another way, even with unprecedented monetary and fiscal stimulus, people are simply not spending money. Inherently, the ecosystem is deflationary, yet the Fed apparently has no choice but to contribute even more deflation.
Proceed With Caution
Ultimately, no compass exists for navigating these treacherous waters. Therefore, investors will want to tread carefully with any framework, whether it be bullish or bearish. Still, with stocks down today against a prior environment of budding optimism, it’s worth taking a breather and reexamining your overall market thesis.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
