(Boursier.com) — Wall Street fell on Friday, quite volatile following the double intervention of Fed boss Jerome Powell before Congress. The S&P 500 lost 0.62% to 4,355 pts, the Dow Jones 0.51% to 33,777 pts and the Nasdaq 0.92% to 13,506 pts. On the Nymex, a barrel of WTI crude fell 1.5% to $68.5. An ounce of gold gained 0.6% to $1,936. The dollar index gained 0.5% against a basket of currencies.
The preliminary US Markit Composite PMI for June came in at 53, fairly close to consensus expectations of 53.3. The manufacturing index was 46.3 and the services indicator 54.1, against respective FactSet consensuses of 48.4 and 54. Thus, US activity continued to expand this month with services, but the manufacturing segment is still struggling.
The American rating is therefore tempering after its rally in the first half, and while the broad S&P 500 index has just technically returned to “bull market” territory. The American economy remains resilient and operators are still enthusiastic about the prospects of artificial intelligence, the theme of the moment. Nevertheless, the fear of lasting monetary austerity, revived by the latest comments from Jerome Powell, as well as the high level of valuations on Wall Street, in particular on the major technological files, encourage caution.
Powell confirmed this week that it would be appropriate to raise rates further, possibly twice more this year. This is at least the widely shared opinion within the FOMC, the Fed’s monetary committee, and Powell says he is in line with these expectations… Powell estimated that there was still a long way to go to reduce inflation to 2 %. He recalled that nearly all central bank officials expected to raise interest rates later this year, after the central bank opted to take a break last week. “Virtually all FOMC participants expect it to be appropriate to raise interest rates a little further by the end of the year,” Powell said. “But at last week’s meeting, given the distance and speed at which we have advanced, we felt it prudent to keep the target range stable to allow the Committee to assess additional information and its implications.” .
He judges that the banking system remains “healthy and resilient” and repeats that the central bank plans to strengthen the rules. “Recent bank failures, including the failure of Silicon Valley Bank, and the resulting banking strains, have underscored the importance of ensuring that we have the appropriate rules and supervisory practices in place for banks of this size. “. Note that the head of the Federal Deposit Insurance Corporation (FDIC) said yesterday that banking regulators are considering applying a tougher set of capital rules to banks with more than $100 billion in assets. FDIC Chairman Martin Gruenberg said in a speech that the spring turmoil in the banking sector shows that companies of this size pose a risk to the financial system and deserve stricter oversight.
Powell believes inflation is still high, although it has moderated since the middle of last year. He notes signs that the labor market is balancing out, pointing to an increase in labor force participation, slowing wage growth and falling job vacancies. The demand for labour, however, still far exceeds the supply of available workers. The Fed Chairman said it would be perfect – but not guaranteed – that the labor market could return to a better balance without unemployment rising…
The head of the US central bank therefore maintains a tough stance, while the road remains long before inflation is completely reduced. According to him, it will take time for the full effects of the monetary restriction to be felt from this point of view. The Fed will make its rate decisions on a meeting-by-meeting basis based on the new data, according to the executive. Officials will notably be able to assess another employment report, an inflation report and a series of quarterly bank financial results by the next monetary meeting.
Powell defends the Fed’s position, as the contrast is stark between June’s rate hold and the hawkish nature of Fed members’ forecasts (the latest SEP and its dot plot show tightening expectations of 50 basis points). basis this year). According to the CME Group’s real-time FedWatch tool, the highest probability (77%) for the next U.S. central bank monetary meeting, on July 25-26, is a 25 basis point hike in the fed rate. funds between 5.25 and 5.5%. At the previous meeting, the Fed had chosen to take a break by leaving its rates unchanged between 5 and 5.25%, in order to observe the impact of earlier measures of accelerated monetary tightening.
On the geopolitical front, Joe Biden and Indian Prime Minister Narendra Modi announced deals in defense and ‘chips’, as the United States and India forge closer ties… On another note, Biden doesn’t think calling Xi Jinping a “dictator” has harmed US-China relations, and still expects to meet Xi…
Values
CarMax (+10%), the American giant of the distribution of used vehicles, jumped on Wall Street after the publication of its accounts. Adjusted earnings per share for the first fiscal quarter reached $1.16, well above the consensus which was only 79 cents. Revenue totaled $7.69 billion, versus a consensus of $7.5 billion. Activity thus fell by 17.4% year-on-year, but exceeded market expectations.
Smith & Wesson (+18%!) climbed on Wall Street, the firearms manufacturer having revealed accounts that exceeded expectations, with a quarterly adjusted diluted EPS of 32 cents compared to a consensus of 27 cents. Net sales for the fourth quarter were $144.8 million, down 20.1% from the comparable quarter last year. Gross margin stood at 29% compared to 39.8% in the corresponding quarter of the previous fiscal year.
Virgin Galactic, the space tourism group created by Richard Branson, which had just rebounded on Wall Street with the prospect of launching commercial flights at the end of the month, fell 18% on the American market. The group is taking advantage of this to greatly dilute its shareholders, as it seeks to finance the development and expansion of its fleet. It has just raised $300 million through an offering in common stock and already plans to raise up to an additional $400 million through future offerings.
Ali Baba (-3%). Jack Ma plans to get more deeply involved at Alibaba with Eddie Wu as managing director, the Financial Times explains. Various Alibaba executives and employees have clarified to the FT that Wu shares a close relationship with his mentor Ma, and while Ma would have no interest in taking over day-to-day running of the business, Wu excels at execution. of Ma’s vision for the company. According to the article, Ma is pushing Alibaba to refocus on small and medium Taobao sellers rather than the big brands that dominate on Tmall, and Wu’s first task will be to reverse the platforms’ decline.
3M (+1%) is progressing on Wall Street, while the diversified American industrial group has just announced a 10.3 billion dollar agreement with public water management players in the United States, who accused it of pollution linked to eternal pollutants, the famous PFAS. Under the terms of the settlement, 3M agreed to contribute up to a present value of $10.3 billion, payable over 13 years. 3M expects to record a pretax charge of approximately $10.3 billion in the second quarter of 2023.
Ford-Motor (-1%) secured a $9.2 billion loan from the US Department of Energy for the company’s three electric vehicle battery plants. In addition, the group is expected to announce new workforce reduction measures next week, according to well-informed sources at the Wall Street Journal.