Concerns mount over credit flow
The extra yield investors require to own investment-grade corporate bonds, instead of Treasurys, had risen past 150 basis points to reach the widest spread in two years at the end of June, according to Bloomberg data. The spread is raising concern of disruption in credit flow, a factor the Federal Reserve needs to weigh when considering raising interest rates.
The S&P 500’s worst H1 in more than 50 years
By the end of the June, the S&P 500 had fallen 20.6% since the beginning of the year, marking the biggest decline for the first half of the year since 1970, with other major indexes also falling in June and in the second quarter. This does not necessarily indicate a torrid H2, S&P Dow Jones Indices analysts say, noting little historical correlation in S&P 500 performance between H1 and H2.
Are we in a recession? Wells Fargo says yes
Speculation of when a recession will occur is over because the US is already in one, according to the Wells Fargo Investment Institute. The investment-strategy unit cites forecasts of rising unemployment, deterioration of consumer sentiment and fewer discretionary purchases as shoppers focus on food and other basic needs.
The recession dichotomy
If the US is in or near a recession, it doesn’t look like any other on record: Economic output is declining, but so is the unemployment rate. Demand for workers remains strong, and labor is scarce, with even pessimistic economists seeing only a modest job downturn in coming months. “We are going to have a very unusual conflict between the employment numbers and the output numbers for a while,” says Northwestern University economics professor Robert Gordon.
Companies walk post-Roe tightrope
Companies are carefully approaching a response to the Supreme Court’s overturn of Roe v. Wade, with some avoiding public statements and others, such as Amazon, Citigroup and Goldman Sachs, announcing financial support for travel and medical expenses incurred by employees. Even if companies aren’t rushing to speak publicly, they likely are “readying their internal policies and practices to mitigate the harm,” says Jen Stark of consultancy BSR, and expanded sick leave and travel stipends likely are “the new floor for large employers.”
EY’s massive cheating scandal and record $100M fine
EY will pay $100 million, the largest fine levied against an auditing firm by the Securities and Exchange Commission, to settle accusations that hundreds of auditors cheated on ethics exams to keep or obtain professional licenses and that the firm failed to stop the cheating. The SEC said EY misled investigators, withheld evidence and violated public accounting rules, with SEC Enforcement Director Gurbir Grewal stating: “It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things.”
Will inflation become entrenched?
Minutes from the Federal Reserve suggest policymakers were concerned during a June meeting that “elevated inflation could become entrenched if the public began to question the resolve” of the Fed’s response. The policymakers indicated “an even more restrictive stance could be appropriate if elevated inflation pressures were to persist.”
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