U.S. equities managed to escape negative territory Friday and finish in the black despite some downbeat economic data – a welcome beginning to 2022's second half after a dreadful performance through the midway point.
Front and center Friday was the Institute for Supply Management (ISM) manufacturing index, which delivered its weakest reading in two years. The index's June reading of 53.0, which was down considerably from May's 56.1, fell well below economists' forecasts for 54.5 and marked its lowest point since June 2020.
"The new orders component was particularly rough," say Wells Fargo economists Tim Quinlan and Shannon Seery. "It slipped 5.9 points to 49.2, which marks the first contraction reading since May 2020, when the economy was coming out of pandemic-related lockdowns."
The pair add that while the report demonstrates slower manufacturing activity, supply problems are continuing to ease. "In short, the report piles onto weaker consumer data received this week and signals investment spending is starting to weaken too."
From a sector standpoint, utilities (+2.5%) and real estate (+1.8%) were among Friday's biggest winners as investors appeared to chase yield. But the most noteworthy individual equities were heading in the other direction. Kohl's (KSS, -19.6%) plunged after announcing it had ended its attempts to sell the company, putting the kibosh on Vitamin Shoppe owner Franchise Group's plans to buy the struggling retailer. Kohl's also reduced its second-quarter sales forecast.
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Meanwhile, computer memory firm Micron Technology (MU, -3.0%) warned that it expected its components for smartphones to decline by 5% year-over-year, and PC products to decline 10%. That weighed on the entire industry, as shown by an 3.5% decline in the iShares Semiconductor ETF (SOXX).
The broader markets, however, shrugged off early-session declines and finished with decent gains to kick off 2022's second half. The Dow Jones Industrial Average was up 1.1% to 31,097, the S&P 500 improved 1.1% to 3,825, and the Nasdaq Composite climbed 0.9% to 11,127.
And remember: It's a long weekend for investors, with the stock and bond markets both closed Monday for the Fourth of July.
Other news in the stock market today:
The possibility of recession isn't just being felt in stock prices – it's also being felt in dealmaking. Well, to be precise, a lack thereof. Says Quincy Krosby, chief equity strategist for independent broker-dealer LPL Financial:
"As fears of an imminent recession rise, de-risking in capital markets continues as SPAC (Special Purpose Acquisition Companies) deals, which enjoyed tremendous investor enthusiasm while real rates were negative, continue to unwind. The IPO (initial public offering) calendar remains on hold until markets stabilize and risk appetite returns. Similarly, volume in private equity deals, as well as merger-and-acquisition announcements, have slowed as the overall investing environment faces a host of challenges associated with the global campaign to curtail inflation."
The fix for that could be the very same thing that would help the stock market get back on its feet: a better-than-expected second-quarter earnings season.
That kind of upside surprise, of course, is no guarantee. So for now, caution is key – and investors looking for a little protection have a wealth of options. These 10 defensive ETFs, for instance, have widely outperformed the broader market and offer stability for anyone expecting more turbulence before the skies finally clear.
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