Stock Market Today: Bears Viciously Repel Post-Fed Rally

Whatever cheer investors took from yesterday's Federal Reserve policy announcement and Chair Jerome Powell's presser evaporated Thursday, as the major indexes sank and the Dow Jones Industrial Average dropped to within close reach of its own bear market.

Several pieces of data out today hinted at a slowing economy:

• The Philadelphia Fed Manufacturing Index dropped to -3.3, versus +5.5 expected, indicating that the region's manufacturing activity was contracting for the first time since May 2020.
• Housing starts plunged 14.4% in May to 1.549 million annualized units, the lowest in 13 months.
• And while initial unemployment filings for the week ended June 11 were unchanged at 229,000, the prior week's number was revised upward by 3,000 filings, and the four-week moving average of 218,500 was the highest in five months.

"The labor and housing markets are normalizing after running red-hot in 2021," says Bill Adams, Chief Economist for Comerica Bank. "Higher interest rates have broken the fever in housing, with the benchmark survey of homebuilders showing reduced foot traffic at showings. Layoffs are still historically low in the U.S., but rising. A couple of states noted layoffs in the broad industry groups that include retail, e-commerce, and temp services in the latest week's data."

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Meanwhile, investors continue to mull the ramifications of the Federal Reserve's 75-basis-point interest-rate cut – and how effective it might be against a major market headwind.

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"Perhaps [the rate cut] increases the Fed's credibility, but it remains to be seen whether monetary policy is a sufficient tool to materially impact inflation that is being primarily driven by supply side constraints," says Shawn Snyder, Head of Investment Strategy at Citi Personal Wealth Management.

Every single market sector was lower Thursday, though some had it worse than others. Energy stocks (-5.5%) were the market's worst performer despite a 2.0% improvement in U.S. crude oil futures, to $117.58 per barrel. Tech and tech-esque stocks continued to absorb the brunt of higher-rate fears; Tesla (TSLA, -8.5%), Advanced Micro Devices (AMD, -8.1%) and Charter Communications (CHTR, -7.5%) were among some of the most notable decliners.

Consumer staples (-0.8%) offered the best defense, relatively speaking, thanks to modest gains in the likes of Walmart (WMT, +1.0%) and Procter & Gamble (PG, +0.6%).

The major indexes sustained significant damage. The Nasdaq Composite (-4.1% to 10,646) led the way lower, followed by the S&P 500 (-3.3% to 3,666) and the Dow (-2.4% to 29,927). The industrial average is now just a 2.2% decline away from being 20% below its Jan. 3 closing high and entering its own bear market.

Other news in the stock market today:

• The small-cap Russell 2000 retreated by 4.7% to 1,649.
• Gold futures gained 1.7% to finish at $1,849.90 an ounce.
• Bitcoin's decline continued, with the cryptocurrency off 3.9% to $20,841.49. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
• Fears of a potential recession dragged on a number of travel stocks today. Cruise operators Carnival (CCL, -11.1%) and Royal Caribbean (RCL, -11.4%) were among the biggest decliners, while airlines American Airlines (AAL, -8.6%) and Delta Air Lines (DAL, -7.5%) also plummeted.
• Kroger (KR) stock slipped 2.1% after the grocery chain reported earnings. In its first quarter, KR recorded adjusted earnings of $1.45 per share and revenue of $44.6 billion, more than the $1.30 per share and $44.2 billion a nalysts were expecting. Kroger expects full-year earnings to arrive between $3.85 per share and $3.95 per share, a slight (10-cent) improvement on the low end of its previous forecast. CFRA Research analyst Arun Sundaram maintained a Sell rating on KR stock. "Gross margin headwinds could strengthen with price competition increases and continued inflationary pressures," the analyst says. "Lower fuel margins, less COVID-19 vaccine benefits, and moderating food-at-home demand will also likely be headwinds this year. Overall, we think it is a good time for investors to take profits considering KR shares have outperformed peers and the broader market year-to-date."

More Energy in Energy?

Oil and gas stocks might have had a miserable day, but don't assume they're out of fuel either.

"We believe energy prices will remain elevated for the foreseeable future, as demand for fossil fuels is not declining as fast as people think and alternative energy is not as available as people think," says David Trainer, CEO of investment research firm New Constructs. "Profits in the energy sector are rising much faster than the sector's overall valuation, so there remains plenty of upside across the sector."

But given energy's still-massive run in 2022 (+41.6% YTD), investors don't have the leeway to buy the sector indiscriminately, unlike earlier in the year.

"Investors need to do their homework in this environment and focus on the most profitable companies trading at the biggest discounts no matter what the sector is," he says.

Investors who want to try to squeeze a little more juice from the oil patch can start their search with our seven best energy picks for the rest of the year. Each of these stocks earns high marks from the analyst community, and we highlight what sets them apart from the pack.