Week 16 in Brief
U.S stocks closed the week lower, with the three major indices dropping, as investors worried over inflation and fears of recession and the likelihood that the Federal Reserve would increase interest rates higher than initially thought. Investors appeared to panic as the Dow lost more than 1000 points on Friday.
How did the major indices perform?
- The Dow Jones Industrial Average lost 981 points, or 2.8%, to close at 33,811.40. Friday’s performance was the index’s worst daily percentage decrease since Oct. 28, 2020.
- The S&P 500 Index lost 2.8%. The index had its most significant one-day loss in almost seven weeks as worries deepened about a surge in interest rates and the U.S. central bank’s efforts to fight inflation.
- The Nasdaq Composite lost 2.6% and had its worst day in nearly seven weeks.
- The Russell 2000 index, which tracks small companies, slid 50.80 points, or 2.6%, to 1,940.66.
What drove the US market?
- Quarterly earnings reports: For much of the week, equities appeared healthy following positive quarterly earnings reports and outlook from American Airlines, Tesla, and other big companies. Though not all earnings have been positive, corporate optimism has helped stocks remain relatively resilient, even as worries swirl about the highest inflation in decades, the war in Ukraine and the coronavirus. Uncertainty remains in the market especially as investors anticipate quarterly reports from big tech companies (such as those from Microsoft, Facebook-parent Meta Platforms, Apple and Amazon) slated for next week
- Federal Reserve Policy: As the market digested better-than-expected earnings reports and as corporate optimism moved the markets, sentiment was doomed when the Fed announced possibility of second interest rate hike. Federal Reserve chair Jerome Powell indicated the central bank may indeed hike short-term interest rates by double the usual amount at upcoming meetings, starting in two weeks. Rising interest rates and persistently high inflation have weighed on stocks and created concerns about an economic slowdown.
- Economic Data: A preliminary report on Friday indicated the U.S. services industry’s growth is slowing, hurt in particular by surging costs for fuel, wages, and other expenses.
Which US stocks were in focus Friday?
- Most stocks on Wall Street fell, including more than 95% of the companies in the S&P 500. Technology and health care companies were among the biggest weights. Apple fell 2.8% and Microsoft dropped 2.4%.
- HCA Healthcare slumped 21.8% for the biggest decline in the S&P 500 after reporting weaker earnings per share for the latest quarter than analysts expected. The hospital operator also cut its forecasted ranges for revenue and earnings this year.
- Verizon Communications slid 5.6% after it said it expects earnings for the year to fall at the lower end of the range it had previously forecast. The company also reported slightly weaker revenue than expected for the first three months of the year.
- Retailer Gap sank 18% after it cut its forecast for sales for the current fiscal quarter and said the CEO of its Old Navy business will leave the company.
- On Wednesday, Netflix shares dropped about 35% after the streaming company revealed a surprise subscriber loss. The drop appeared to weigh on not just other streaming stocks such as Warner Bros. Discovery but also some other more speculative names, like solar energy plays, which declined on a broadly strong market day.
How did the European markets perform?
- European equities closed down on uncertainty following news that the US Federal Reserve will increase may interest rates next month. The pan-European Stoxx 600 closed down 1.8%, with mining shares slumping 3.6% to lead the losses as all sectors dipped into the red.
- Shares in Germany lead the region as the DAX fell 2.48%. France’s CAC 40 is off 1.99% while London’s FTSE 100 dropped 1.39%.
- B&M sunk 6% on news that its CEO will retire next year in individual stocks.
- Data showed that Britain’s retail sales volumes slowed, dropping more than expected in the month of March.
- Meanwhile, shares of the French luxury retailer Kering also dropped more than 4% amid concerns over its sales performance in China, where a zero-Covid policy is worrying investors.
- Germany company SAP released earnings Friday, flagging a hit to its revenue from its exit from Russia. The German software giant said its decision to leave Russia following its invasion of Ukraine was expected to lead to a negative revenue impact of around 300 million euros ($325 million).
- Investors are also waiting for Sunday’s run-off of French presidential elections between incumbent Emmanuel Macron and far-right challenger Marine Le Pen, with the latest polls showing Macron winning with 55% of the votes. In a note Thursday, Goldman Sachs described the election as a decisive moment for France’s policy path. Le Pen’s win could provoke tensions with European allies and weigh on the euro.
How did Asian markets perform?
Asian markets retreated Friday over fears over higher interest rates. The Shanghai Composite gained 0.23%, while the Nikkei 225 led the Hang Seng lower. They fell 1.63% and 0.21% respectively.
Bonds and Commodities
- Treasury yields have soared as investors prepare for a more aggressive Fed, and stocks have often moved in the opposite direction of them. The yield on the 10-year Treasury slipped to 2.90% from 2.91% late Thursday, but remains close to its highest level since 2018. It began the year at 1.51%.
- Oil slipped on Friday, posting a weekly loss of nearly 5%, on the prospect of weaker global growth, higher interest rates and COVID-19 lockdowns in China hurting demand. Brent crude settled down $1.68, or 1.6%, at $106.65 a barrel. U.S. West Texas Intermediate (WTI) crude declined $1.72, or 1.7%, to $102.07.
- The U.S. dollar surged to a more than two-year high on Friday. The dollar index, a gauge of the greenback’s value against six major currencies, hit 101.33, the highest since March 2020. It was last up 0.6% at 101.16 , the largest daily percentage gain since mid-March. So far this year, the dollar index has gained 5.7%.
- The pound fell 1.5% against the dollar to $1.2832 a, after hitting $1.2830, the lowest since October 2020. Against the yen, the dollar rose 0.2% to 128.55 yen. The yen is still within striking distance of its weakest level since April 2002 at 129.43 yen per dollar hit on Wednesday.
The market will have its largest share of companies reporting quarterly earnings – from tech heavyweights (Amazon, Apple, Microsoft, Google-parent Alphabet and Facebook-Meta Platforms) to manufacturers like Coca Cola. Firms in almost every sector and industry will report quarterly earnings.