SPY, QQQ Tumble as Recession Alarm Rings—Fed Divided on Rate Cut Timing

Markets wobble as classic recession indicator flashes red—just as Fed officials can't agree whether to ease or hold.

SPY and QQQ—the ETF darlings of passive investors—slip as the yield curve inverts yet again. Wall Street's favorite 'impending doom' signal strikes back.

Meanwhile at the Fed: Hawks and doves clash over rate cuts like crypto traders arguing over Bitcoin's 'true' bottom. One side sees inflation tamed, the other smells 1970s reruns.

Bonus cynicism: Nothing unites the Fed faster than a 20% market drop—except maybe bankers' bonus season.

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The market received a morning boost after President TRUMP announced on the Juneteenth holiday that the U.S. would hold off from striking Iran’s nuclear facilities for two weeks to allow a window for negotiations. However, those gains were quickly erased after The Conference Board’s Leading Economic Index (LEI) flashed a recession signal.

The LEI has fallen by 2.7% for the six months ended May, with its annualized six-month growth rate dropping below -4.1%, one of the two requirements that trigger a recession warning. The other requirement occurs when the six-month diffusion index reaches or drops below 50, which signals that most of the components within the LEI are falling. The components include manufacturing, labor market, sentiment, and credit statistics, among others. The recession indicator isn’t perfect, although it did precede the recessions of 2000 and 2008 while issuing false signals in 2022, 2023, and 2024.

Meanwhile, chip and AI stocks took a hit after a Wall Street Journal report that the U.S. Department of Commerce (DOC) is planning on restricting Samsung, SK Hynix, and Taiwan Semiconductor’s (TSM) access to American chip-making technology in their Chinese factories. The three companies currently enjoy a blanket waiver on moving U.S. chip-making equipment to their Chinese facilities, although DOC export controls head Jeffrey Kessler has informed them that the waivers could be cancelled. The policy hasn’t been set in stone yet, however.

In interest rate news, Fed officials are split on when to cut rates sooner or later. Fed Governor Christopher Waller supports a rate drop as soon as July while Richmond Fed President Thomas Barkin doesn’t see a rush for lower rates while the labor market and consumer spending remain healthy. “I don’t think the data gives us any rush to cut… I am very conscious that we’ve not been at our inflation target for four years,” said Barkin in an interview with Reuters.

The S&P 500 finished with a 0.22% loss while the Nasdaq 100 fell by 0.43%.