Stock Market Closes Higher On First Day Of July; Defensive Stocks Lead As Recession Fears Loom

The stock market began the second half of the year with gains, with defensive stocks leading the way as investors remain concerned that we could be entering a recession soon.

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In a seesaw market, the major stock indexes climbed back from lows earlier in the day to close higher. The Nasdaq composite closed up 0.9%, while the S&P 500 climbed 1.1%. The Dow Jones Industrial Average closed up 1%. The small-cap Russell 2000 gained 1.3%.

Volume was down on the Nasdaq and the New York Stock Exchange on Friday compared with the same time on Thursday, on this last day before a long holiday weekend, according to early data.

The ISM Manufacturing Index dropped to 53.0 from 56.1 in May, the weakest number since June 2020. Analysts were looking for 54.5. It was yet another indication of weakening demand.

“As fears of an imminent recession rise,  de-risking in capital markets continues,” said Quincy Krosby, chief equity strategist for LPL Financial. “Investors wait to hear from companies report their second quarter earnings, and now even more important, their guidance. Although negative earnings revisions are increasing, overall expectations for the second quarter remain surprisingly solid despite ongoing constraints affecting corporate operating margins.”

Defensive Stocks Lead The Stock Market

To start the second half of the year, defensive stocks led the markets on Friday as investors anticipated that we could enter a recession soon, if we aren’t already in one. The S&P Utilities Sector ETF (XLU) gained 2.3%, leading all S&P sectors. Electric utilities NextEra Energy (NEE) jumped 3.6%, Southern (SO) gained 2.4%, and Duke Energy (DUK) climbed 2%.

NextEra is building a double-bottom base with a buy point of 87.62.

Southern rose above its 50-day moving average on Friday and is in a consolidation with a 77.33 buy point. Duke also crossed its 50-day line.

PNM Resources (PNM) rose above the buy point of 48.42 in an odd flat base. The chart shows a new high on a relative strength line that is climbing steeply.

McDonalds (MCD) was a top gainer in the Dow Jones Industrial Average, closing up 2.4%. Coca-Cola (KO) and Boeing (BA) also outperformed.

Homebuilders Gain, Chip Stocks Fall

Homebuilders outperformed in the S&P 500 as interest rates dropped again. After dropping 12 basis points Thursday, the 10-year Treasury yield was down another 8 basis points Friday to 2.89%.

PulteGroup (PHM), Lennar (LEN) and D.R. Horton (DHI) soared in the S&P 500, with gains ranging from 5.8% to 7%.

Kinsale Capital (KNSL), a property and casualty insurance company, gained 2.9%, on top of yesterday’s gain of 3.2%. Kinsale’s stock is above the 21-day exponential moving average, with an ascending relative strength line.

Kohl’s (KSS) fell more than 19% in heavy volume, on news that it ended talks with Franchise Group (FRG) to be acquired. Franchise Group stock fell more than 7% to a March 2021 low.

Micron Technology (MU) fell 3.2% in heavy volume, after management gave lower Q4 revenue and EPS guidance than analysts were expecting. The stock hit a low of 51.40 this morning, a level it hasn’t seen since Nov. 4, 2020.

The SPDR S&P Semiconductor ETF (XSD) dropped 3.7% as semiconductor producers are facing diminishing consumer demand in items such as PCs and smartphones.

The Innovator IBD 50 ETF (FFTY), a gauge of growth stocks, was down 0.2%, underperforming the broad stock market.

Follow Michael Molinski on Twitter @IMmolinski

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