Here are the most important news, trends and analysis that investors need to start their trading day:
- Wall Street set to rise after S&P 500 officially closed in bear market
- 10-year Treasury yield backs off 2011 highs after cooler inflation data
- Fed to begin two-day meeting and markets now expect a 0.75% rate hike
- Coinbase to lay off 18% of full-time jobs; bitcoin plunges again
- Oracle surges as database software giant beats on earnings, revenue
U.S. stock futures bounced after Tuesday's cooler inflation report and what could be an even more aggressive Federal Reserve interest rate hike Wednesday. The S&P 500 on Monday officially closed in bear market territory, defined as a decline of 20% or more from its prior high, which was in January. The broad market index also hit a new low for the year.
- Monday's steep sell-off saw the S&P 500 lose 3.9% and the Nasdaq — already in a bear market since March — drop 4.7%. The Dow sank 876 points or 2.8%. The 30-stock average fell further into a correction, down 17% since its January record high. A correction is defined as a decline of 10% or more from a prior high. All three stock benchmarks have dropped for four sessions in a row.
The 10-year Treasury yield on Tuesday backed off 2011 highs, trading around 3.3%, after the government's May producer price index rose 10.8% year over year, a slightly smaller rise than expected. The PPI is the other side of the inflation coin at the wholesale level, after last week's hotter-than-expected consumer price index. The PPI remained near its historic year-over-year high of up 11.5% in March.
The markets expect the Fed to hike rates by 0.75% at the end of its two-day June policy meeting Wednesday. Only the magnitude of the rate increase is in question, as Fed Chairman Jerome Powell has repeatedly said that 0.5% rises in June and July looked appropriate.
- After the Fed's May meeting, which saw rates go up 0.5%, Powell took a 0.75% hike off the table.
- But a lot has changed since then with the stock market sell-off and the surge in bond yields, and another recession-signaling 2-year yield and 10-year yield inversion.
- The markets are concerned the Fed is going to have to clamp down much harder on the economy to fight inflation and that it might lead to a recession.
Crypto exchange Coinbase will cut 18% of full-time jobs, according to an email sent to employees Tuesday. CEO Brian Armstrong pointed to a possible recession, a need to manage costs, and growing "too quickly" during a bull market. Shares of Coinbase fell 7% in the premarket after closing down 11.4% on Monday. Before Tuesday's premarket drop, the stock dropped 79% year to date as bitcoin and the entire crypto market has sold off in 2022.
- Bitcoin briefly dropped below $21,000 overnight in Asia before bouncing back slightly. Crypto assets were hammered Monday as concerns mount over lending platform Celsius and crypto exchange Binance briefly pausing withdrawals. Bitcoin, trading around $22,000 early Tuesday, has fallen roughly 68% from its all-time in November.
Oracle shares surged 11% in Tuesday's premarket, the morning after the database software company issued fiscal fourth-quarter earnings and revenue that exceeded estimates. Revenue increased 5% to $11.84 billion from a year earlier, driven by growth in the company's cloud infrastructure business, which competes with Amazon Web Services and Microsoft Azure.
- Oracle CEO Safra Catz said in a statement, "We believe that this revenue growth spike indicates that our infrastructure business has now entered a hyper-growth phase." Oracle's earnings beat is particularly important as investors turn their focus to companies that can generate profitability and cash during a downturn. Before the after-hours jump, Oracle shares were down 27% for the year.