THE WEEK ON WALL STREET
Hawkish comments from Fed Chair Jerome Powell overshadowed many largely
positive earnings results, sending stocks lower for the week. The Dow Jones
Industrial Average declined 1.86%, while the Standard & Poor’s 500 dropped 2.75%.
The Nasdaq Composite index fell 3.83% for the week. The MSCI EAFE index, which
tracks developed overseas stock markets, advanced 0.50%.
FOCUS COMES OFF EARNINGS
With the inflation report in the rearview mirror and a Fed meeting two weeks away,
many may have expected corporate earnings to be in focus last week. Comments by
Jerome Powell stole the spotlight. Investors began the week awaiting earnings reports
looking for insight into businesses handling the latest inflation, a jittery consumer,
tighter monetary policy, and ongoing supply chain issues. Despite one high-profile
earnings disappointment, corporate profits appeared better than expected. By the time
trading began on Thursday, 17% of S&P 500 companies had reported, and most had
beaten Wall Street analysts’ estimates. Investors responded positively, sending share
prices higher until Powell’s comments on Thursday afternoon triggered selling into the
day’s close and accelerated through Friday.
POWELL UNNERVES MARKETS
On Thursday, at an event hosted by the International Monetary Fund, the Fed Chair
offered his view that it may be appropriate to move more quickly on raising interest
rates. He indicated that a 50 basis point hike was on the table for the Federal Open
Market Committee (FOMC).5
His comments also emphasized the need to restore price stability, recalling the
successful efforts of former Fed Chair Paul Volker, who used a series of rate hikes to
tame the inflation of the 1970s and early 1980s. While some observers anticipated
these comments, yields rose, and stocks fell in response.
THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: Durable Goods Orders. Consumer Confidence. New Home Sales.
Thursday: Gross Domestic Product (GDP). Jobless Claims.
Friday: Consumer Sentiment.
THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS
Monday: The Coca-Cola Company (KO).
Tuesday: Microsoft Corporation (MSFT), Visa, Inc. (V), Alphabet, Inc. (GOOGL),
General Motors Company (GM), Archer Daniels Midland Company (ADM), 3M
Company (MMM), Texas Instruments, Inc. (TXN), United Parcel Service, Inc.
(UPS), D.R. Horton, Inc. (DHI), Chipotle Mexican Grill, Inc. (CMG).
Wednesday: Meta Platforms, Inc. (FB), The Boeing Company (BA), Ford Motor
Company (F), Qualcomm, Inc. (QCOM), PayPal Holdings, Inc. (PYPL), Amgen, Inc.
(AMGN), ServiceNow, Inc. (NOW), Norfolk Southern Corporation (NSC).
Thursday: Apple, Inc. (AAPL), Amazon.com, Inc. (AMZN), Intel Corporation
(INTC), Mastercard, Inc. (MA), Caterpillar, Inc. (CAT), Merck & Co., Inc. (MRK),
McDonald’s Corporation (MCD), The Southern Company (SO), Eli Lilly and
Company (LLY), Northrop Grumman Corporation (NOC).
Friday: AbbVie, Inc. (ABBV), Exxon Mobil Corporation (XOM), Bristol Myers
Squibb Company (BMY), Chevron Corporation (CVX), Honeywell International,
Inc. (HON), Colgate-Palmolive Company (CL), L3Harris Technologies, Inc. (LHX).
FINAL THOUGHTS
179 companies are reporting earnings this week.
Of the 102 companies that have reported so far (20% of the S&P 500), overall results
are beating estimates by a median of 6%. And, 75% of those reporting are beating
estimates.
On the top line, overall results are beating estimates by a median of 3%. And, 66%
of those reporting so far are beating estimates.
So, if companies are beating earnings estimates, why is the market going down?
Well, there is much anxiety over interest rates going up and volatility is high. Many
are worried the Fed could push rates too high too fast and slow the economy too
much in their efforts to combat rising prices.
It feels bad to watch the market decline and see one’s account values decline in times
like these. Sometimes, our emotions can get the best of us. Emotional investment
decisions are rarely good ones. So, during times like these it is important to keep
one’s longer term goals in mind. For some, I realize long term is shorter than
others. A friend of mine who was in his 80’s at the time, would always tell me, “Nick,
I don’t buy green bananas.” And I totally get it. However, we always stress we do
not want to invest one’s money that could be needed in the near term into risk
assets. For funds that aren’t needed in the short term, we invest because we know
markets tend to do well over time and are one of our best tools to keep up with and
outpace inflation.
When volatility strikes it is important to remember eventually, this too shall pass. I
am not saying it will pass this week, it could be this way for several months.
However, stock markets are made up of real businesses we all patronize and will
continue support as we live our daily lives. They aren’t going to evaporate. Inflation
and interest rates will eventually stabilize and markets will once again begin their
march higher. Warren Buffet has always said, when others are greedy be nervous and
when others are nervous, be greedy. Investor sentiment is at longer term lows. I would
call that nervous.
