The Dow Jones Industrial Average sunk close to 640 points after concerns over a looming recession grew louder today. In a recent survey conducted by CNBC among various chief financial officers, not one of the 22 respondents thinks a recession is avoidable in the near future. Roughly 68% of respondents thought a recession would occur in the first half of 2023, and every CFO responding expects a recession to hit by the end of 2023.
Additionally, unemployment claims climbed to their highest level last week since the very beginning of 2022. Filings for the week ending June 4 grew to 229,000, up from just over 200,000 the week prior and well above economist estimates.
Jobless claims are a good indicator of economic health and also a sign of whether or not the Federal Reserve will be able to engineer a soft landing, as it raises its key benchmark lending rate in order to reign in some of the highest levels of inflation seen in 40 years. The Fed’s goal is to bring down consumer prices without hurting the currently healthy job market. If unemployment heads higher as the Fed raises rates, the economy could find itself in trouble.
Boeing and Disney lead the fall
The two biggest losers in the Dow today on a percentage basis were the aviation and defense company Boeing (NYSE: BA), which saw its shares decline by more than 4.2% today. Walt Disney (NYSE: DIS) was not far behind, with shares sinking roughly 3.8% today.
There didn’t look to be a ton of news driving Boeing’s decline beyond broader market forces. But a report released today by the U.S. Government Accountability Office said the aerospace giant is having issues finding the right workers to finish two Air Force One jets, which are specifically for U.S. presidents.
Disney made waves today after the company announced the abrupt firing of one of its chief television content executives, Peter Rice, who had also supposedly been a candidate to succeed current CEO Bob Chapek one day. CNBC reported that Rice was told he wasn’t a good fit from a cultural perspective.
I consider both events surrounding Boeing and Disney to be near-term headwinds in nature. Boeing has seen an increase in defense spending by foreign governments lately, due to Russia’s ongoing invasion of Ukraine, which should continue to play out this year. While internal employee issues are never good, I don’t view Disney’s firing as enough to derail the company or the success of Disney+, the House of Mouse’s wildly successful streaming network.
Will the economy tip into a recession?
I agree that there’s a strong likelihood the economy does tip into a recession in the near future, and recent data this week suggests the economy might indeed be on the brink of seeing U.S. gross domestic product go negative for two straight quarters.
However, not all recessions are severe, and not all last a long time. The U.S. consumer is still relatively healthy and spending at strong levels. While recent jobless claims aren’t exactly encouraging, the job market is by and large still healthy. While I don’t think anyone knows exactly how things will play out, there is no certainty yet in my mind that a severe recession will occur.
Friday morning, the U.S. Bureau of Labor Statistics will release data showing how the Consumer Price Index (CPI) trended in May. The CPI tracks the prices of a group of daily consumer goods and services and is one measure of inflation. Investors will be watching anxiously to see if inflation is peaking or still on the rise, which is likely to have a big impact on the market tomorrow.
Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.