Week 18 in Brief
- U.S stocks booked another week of losses as investors weighed the impact of inflation, employment data and fears of a recession.
- Friday’s losses extended steep declines from the prior session when concerns over the Federal Reserve’s ability to bring down inflation while maintaining solid economic activity resurged.
How did the major indices perform?
- The Dow Jones Industrial Average fell 98.60 points, or 0.3%, to close at 32,899.37.
- The S&P 500 Index dropped 23.53 points, or 0.6%, to finish at 4,123.34.
- The Nasdaq Composite lost 173.03 points, or 1.4%, to end at 12,144.66.
- For the week, the Dow and S&P 500 each slipped 0.2% while the technology-heavy Nasdaq Composite fell 1.5%. Both the Nasdaq and S&P 500 fell for a fifth straight week, while the Dow dropped for a sixth consecutive week.
What drove the US market?
- Economic Data: On Friday, employment report showed the US economy added 428,000 new jobs in April. Still, an acute labor shortage showed little improvement, underlining worries about inflation already running its hottest in 40 years. The unemployment rate remained unchanged at 3.6%, just above a 54-year low. Meanwhile, the Fed’s consumer credit data showed an increase of $52.4 billion in March, more than double what economists expected. The data suggests at least the labor portion of the U.S. economy was still on strong footing even as the Federal Reserve began tightening monetary policies. Stocks had swung violently from gains Wednesday to losses on Thursday, as investors appraised the implications of the Federal Reserve’s latest telegraphed monetary policy path forward for the U.S. economy and markets.
- Treasury yields: Long term Treasury yield rose further, with the benchmark 10-year yield rising above 3.1%. The continued march higher in Treasury yields and borrowing costs has weighed on growth and technology stocks, which are valued heavily on their future earnings potential.
Which US stocks were in focus Friday?
- Technology stocks again drove the market lower with Amazon falling 1.4%, while Microsoft and Nvidia dropped about 0.9%. Netflix and Crowdstrike fell 3.9% and 8.9%, respectively. The underperformance of the tech sector is directly tied to the rise in real yields, which are now in positive territory. Tech stocks face both valuation pressures and rising interest rates.
- Meanwhile, speculative sectors such as biotech and solar energy were hit hard on Friday. Illumina dropped more than 14%, while Enphase Energy fell 8.4%.
- Shares of Zillow Group Inc. fell around 4.4% after the company blew past revenue forecasts but delivered a disappointing forecast late Thursday that reflected the uncertainty facing the real-estate sector.
- Shares of Cloudfare plummeted 15.7% after the cybersecurity company’s quarterly results slightly beat Wall Street expectations, but its bottom-line forecast for the current quarter indicated a possible miss in its next report.
- DoorDash Inc. shares declined 1.4% after the delivery-platform company topped revenue forecasts but posted a larger-than-expected drop.
How did the European markets perform?
- European shares posted their worst drop week in two months on Friday, dragged by tech stocks and retailers who suffered the impact of high interest rate hikes. The pan-European STOXX 600 index fell 1.9%, with retailers down 2.0% and technology stocks off 2.4%.
- Earnings continue to affect individual share price movement in Europe. This week Adidas shares dropped 3.6% after the firm lowered expectations for 2022 sales, with renewed COVID-related lockdowns in Greater China hitting the German sportswear company.
- Meanwhile, tech stocks tracked performance of their peers on Wall Street.
- The European Central Bank (ECB) is expected to raise interest rates later this year, with some analysts expecting a hike as early as July after recent record euro zone inflation readings. Meanwhile, a recession warning from the Bank of England weighed on UK stocks.
- Oil & gas stocks were among the few gainers in Europe, up 0.5% as crude prices traded above $110 a barrel ahead of an impending European Union embargo on Russian oil.
How did Asian markets perform?
- Asian markets finished mixed as of the most recent closing prices. The Hang Seng Index closed 3.8% lower Friday and slid 5.2% for the week. The Shanghai Composite Index fell 2.2% Friday to book a weekly decline of 1.5%, while the Nikkei 225 Index rose 0.7% Friday for a weekly advance of 0.6%.
Bonds and Commodities
- Oil prices rose nearly 1.5% on Friday, posting a second straight weekly increase as impending European Union sanctions on Russian oil raised the prospect of tighter supply and had traders shrugging off worries about global economic growth.
- Brent futures rose $1.49, or 1.3%, to settle at $112.39 per barrel. U.S. West Texas Intermediate (WTI) crude climbed $1.51, or 1.4%, to end at $109.77 a barrel. Analysts expect oil to remain bullish in the near term and will only be dragged by fears of an economic downturn. For the week, WTI gained about 5%, while Brent nearly 4% after the EU set out an embargo on Russian oil as part of its toughest-yet package of sanctions over the conflict in Ukraine.
- Gold futures rose, with gold for June delivery settling 0.4% higher at $1,882.80 per ounce. Still, the metal lost 1.5% for the week.
- The ICE U.S. Dollar Index, a measure of the currency against a basket of six major rivals, was down 0.1%. The dollar is expected to remain stronger in forex markets as interest rates rise.
- Bitcoin was down 1.3% at $35,960.
- Investors will review earnings reports from companies including two of the world’s largest automakers (Toyota & Honda), along with Disney, Alibaba Group. A range of economic data from across the world will provide insights into the health of economies.