Stocks plummet and the euro moves ever closer to parity with the US dollar


Stock prices fell as traders waited for a key inflation reading and the start of earnings season to get clues as to whether the economy was headed for a recession. The dollar recovered.

The decline in megacaps like Tesla and Apple weighed heavily on trading.

Twitter plummeted as Elon Musk abandoned his $44 billion deal to buy the company, setting the stage for a legal battle. The euro approached parity with the greenback while US 10-year yields hovered around the 3 percent mark.

Amid a pervasive confluence of economic challenges, investors are waiting to see if earnings will hold or if companies will cut guidance significantly. One reason for caution is the dichotomy between two major forces on Wall Street. Analysts are betting that corporate America is resilient enough to pass higher costs on to consumers, while many strategists aren’t really convinced that’s the case.

“The stock market has not yet priced in a possible drop in earnings estimates this year (or next),” wrote Matt Maley, chief market strategist at Miller Tabak. “Even if earnings estimates hold steady, and especially if they fall, the stock market needs to keep falling before we see a meaningful bottom.”

Mr Maley noted that stocks trade at valuation levels that are viewed as highs, not lows. The current price-to-sales metric, for example, is at the same level as the market highs in 2020, 2018 and the tech bubble in 2000, he added.

Price pressures, a wave of monetary tightening and a slowing global economy continue to keep investors on the sidelines even after global equities lost $18 trillion in the first half.

US inflation is expected to edge closer to 9 percent on Wednesday, bolstering the Federal Reserve’s case for a jumbo rate hike in July.

Steep rate hikes by the Fed and recession fears have pushed the greenback to its highest level since March 2020.

The rise in the dollar will give many large US companies a “massive headwind” to earnings and another reason to expect bleak earnings prospects, wrote Michael Wilson, chief US equity strategist at Morgan Stanley.

Billionaire investor Leon Cooperman said a stronger dollar was actually “negative for corporate earnings.” In fact, several firms including giants Microsoft, Costco Wholesale and Salesforce have also lamented the impact of the US currency’s meteoric rise.

“Markets are moving at lightning speed to price in a rise in inflation rates, a reversal of Fed tightening and an outright recession,” wrote Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. “A halt to stagflation is just as likely as an outright recession.” Stocks plummet and the euro moves ever closer to parity with the US dollar

Fry Electronics Team

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