THE WEEK ON WALL STREET
Recession fears grew last week following weak earnings reports from major retailers,
sending stocks lower. The Dow Jones Industrial Average fell 2.90%, while the Standard
& Poor’s 500 lost 3.05%. The Nasdaq Composite index dropped 3.82% for the week.
The MSCI EAFE index, which tracks developed overseas stock markets, gained 0.84%.
Stock prices remained in a downtrend, capped by a sell-off on Wednesday following a
succession of disappointing earnings reports from several major retailers. Despite solid
April retail sales and industrial production data, weak economic numbers from China
and shrinking profit margins at U.S. retailers fanned recession fears throughout the week.
Rising yields, which have been an overhang to the markets in recent weeks, turned lower
as investors appeared to move cash to bonds from stocks. But lower yields did not help
stock prices, which closed out the week with a volatile trading session.
CLOUDY PICTURE WITH RETAILERS
Investors received a mixed message from the retail sector. April’s retail sales increased 0.9%
from March, signifying that consumer spending remained strong. But it was difficult to
determine from the retail sales report whether the increase was a function of higher retail
prices or a resilient consumer. It was also a big week for earnings reports from some of the
nation’s largest retailers. Results were disappointing as retailers struggled with supply chain
issues, higher costs, and misaligned product mix. Some retailers indicated a drop in the
number of transactions, suggesting that shoppers reduce purchases due to higher prices on
THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: Purchasing Managers’ Index (PMI) Composite Flash. New Home Sales.
Wednesday: Federal Open Market Committee (FOMC) Minutes. Durable Goods Orders.
Thursday: Gross Domestic Product (GDP). Jobless Claims.
Friday: Consumer Sentiment.
THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS
Monday: Zoom Video Communications (ZM).
Tuesday: Best Buy Co., Inc. (BBY), AutoZone, Inc. (AZO), Intuit, Inc. (INTU).
Wednesday: Nvidia Corporation (NVDA), Snowflake, Inc. (SNOW).
Thursday: Costco Wholesale Corporation (COST), Marvell Technology, Inc. (MRVL),
Workday, Inc. (WDAY), Dollar General Corporation (DG), Dell Technologies, Inc. (DELL),
VMware, Inc. (VMW).
Higher rates, Inflation and Bears, Oh My! Well, I couldn’t resist that. To date, this year has
been one difficult market. Asset allocation and diversification really haven’t helped a great
deal. Stocks are down. Ten of eleven sectors are negative. Only energy is positive and you
wouldn’t have your whole portfolio in energy. If you did, the past 10 years have been unkind
to you, until now. Bonds are down. Interest rates have run up a great deal in a short period of
time. I’m not talking about Fed Funds rates. I’m talking about treasury rates and everything
that is priced based upon them, like mortgage rates. In fact, some think they’ve gone too far
too fast and we may see a bit of a rollover there. Let’s hope.
The Fed will continue raising rates, but we are reading reports inflation may be peaking. It’s
early, but the nation’s largest retailers are seeing less demand, and we are reading additional
reports that wage inflation may be beginning to cool. We’ll need to see more than a month’s
worth of data, but it could be the beginning of a new trend. If so, the market is doing some very
heavy lifting for the Fed and rates may not go quite as high as anticipated early in the year.
morning. But, after attempting to put it back together and peering through the duct tape and
glue, the market is looking a little oversold in the short-term. That doesn’t mean we won’t see
more downside, but we could be closer to the end than the beginning. In terms of baseball
vernacular, we may be near the 7th inning stretch. We could see a little more washout into June,
but if inflation is beginning to crack and the labor market is easing up a bit, the worst possible
outcome will probably be avoided. Stay tuned.
THIS WEEK'S UPDATE
May 24, 2022|