Markets in brief
Monday saw a slight rebound for the three main indices. The Dow gained 1.98%, the NASDAQ advanced 1.59% and the S&P 500 accumulated 1.86%. Lately, however, it's become difficult for investors to be relieved after a rebound, as the indices are finding it hard to hold on to their gains. The rebound is all too often short-lived, as markets are sensitive to any economic news, and no bad news disturbed the indices on Monday.
The banking sector was the big winner of the day, with JPMorgan advancing 6.19% on the news that it expects to achieve a key return-on-capital target in 2022. This news supported shares in the sector, including Citigroup (+6.07%), Wells Fargo (+5.16%) and Bank of America (+5.94%).
"The market continues to roll over as it tries to decide if it has priced in all the impending rate hikes, soft landing or recession, inflation or stagflation, China, Ukraine, US summer driving season, supply chains, the list goes on." wrote Jeffrey Haley, senior market analyst at Oanda Asia Pacific, in a note.
Tuesday was another difficult session for the markets, with the NASDAQ down 2.35% and the S&P 500 losing 0.81%, although the Dow Jones managed to finish positive with a slight rise of 0.15%.
Snapchat's 43% plunge, following disappointing quarterly results, dragged down other stocks in the sector. Meta Platforms Inc (Facebook) was down 7.6%, Google Alphabet Inc lost 5% and Twitter Inc fell 5.6%. In total, social media stocks have lost over $135 billion since Snapchat's announcement. "It's not that Snap is a heavyweight in terms of capitalization (only $20 billion) or influence in tech," explained Angelo Kourkafas, "but it's a signal that headwinds are blowing harder and harder."
It was a good session for the markets on Wednesday, with investors feeling optimistic about the Fed's latest comments. The Dow closed up 0.60%, the NASDAQ advanced 1.51% and the S&P 500 gained 0.95%.
"Most members felt that increases of 50 basis points in the target range would probably be appropriate at the next two meetings," the minutes state. In addition, Federal Committee members indicated "that a restrictive policy stance may well become appropriate depending on the evolving economic outlook and the risks to the outlook".
Investors were relieved by the Fed's comments, as there was no indication of a more aggressive interest rate hike to reduce inflation. Fed officials have admitted that they are determined to bring inflation down as quickly as possible, saying that half-point hikes are on the cards.
"One thing that was good for the market was that at no point did Fed members mention 75 points of hike," said Gregori Volokhine, portfolio manager at Meeschaert Financial Services. "And we're also starting to anticipate a rate hike of less, which explains why the market held up a little correctly on Wednesday. The Fed seems to be rapidly hoping for a positive effect of its policy on inflation. We get the impression that they are more confident in their action. It's not impossible that in July or August we'll have encouraging (inflation) figures, and the market will then start to anticipate a time when restrictive monetary policy will calm down".
The focus remained on retail stocks, as Nordstrom's share price posted gains of 14% after releasing quarterly results showing a rise in sales, while raising its full-year outlook. Dick's Sporting Goods, which opened down 7%, jumped 10% after reporting better-than-expected quarterly earnings, despite announcing a lowering of its profit forecasts due to rising costs.
A solid session for the markets on Thursday, with the Dow ending up 1.6%, its fifth straight session of gains. The S&P 500 advanced by 2%, while the NASDAQ gained 2.7%. The Dow and S&P 500 were up 4.4% and 4% respectively for the week. The Nasdaq is up 3.4%.
"While this is an expected and much-talked-about potential "oversold" rally, the basis for today's market rally suggests that last week's pessimism about the all-important U.S. consumer may have been overdone, as well as the recession headlines," said Quincy Krosby, chief equity strategist for LPL Financial.
"Certainly, the data released this week suggest that the economy is slowing, and the Fed appears poised to raise rates to a base level of 50 points over the next two months," she added. "But the idea that the consumer, 70% of the U.S. economy, is on a spending strike is overblown, as earnings reports coupled with positive forecasts indicate otherwise."
The retail sector, last week's big loser when Target and Walmart's results worried investors, was back in the green. Macy's shares jumped 19.31%, Williams Sonoma gained 13.06% and Dollar General, which even raised its forecast for the year, advanced 13.71%. Nordstrom (+5.26%), Walmart (+2.13%), Target (+4.33%) and Home Depot (+3.15%) all finished higher.
On Friday, the indices continued their strong performance of the previous day, with the Dow gaining 52 points, the S&P advancing 0.8% and the NASDAQ accumulating 1.4%. A report from the Commerce Department's PCE index showed inflation slowing to 6.3% year-on-year in April, from 6.6% in March. The price index for core personal consumption expenditure rose by 4.9% in April, following a pace of 5.2% the previous month.
Snapchat
Snapchat shares tumbled 43% on Tuesday after announcing poor quarterly results. The company warned on Monday, after the markets closed, that it would not meet its own revenue and adjusted earnings targets in the current quarter.
"Since we issued our quarterly guidance on April 21, the macroeconomic environment has deteriorated faster and more sharply than anticipated," said the California-based company in a document submitted to the SEC. "As a result, our revenues and EBITDA are likely to come in below (...) our forecasts", the group continued.
With rising inflation, labor costs and supply chain difficulties, companies have less budget to spend on advertising on social networking platforms. The latest changes to Apple's privacy settings also add to the difficulties for companies in this sector, requiring them to obtain user consent to harvest data for advertising targeting purposes.
The company's shares are down 28% since the start of the year, but closed Wednesday's trading session up 7.66%.
