Markets in brief
The sell-off of the past few weeks continued on Monday. The Dow fell 653.67 points, the S&P 500 dropped 3.2 percent to 3,991.24 points while the NASDAQ lost 4.29 percent to 11,623.25 points. Investors were still concerned about the Fed's ability to keep inflation from rising without pushing the economy into a recession. "The big question is whether inflation can fall below 3 percent without the Fed causing a recession," wrote Dennis DeBusschere, founder of 22 V Research. "Until that question is resolved, financial conditions will be tighter and markets will struggle despite oversold conditions."
The Dow is in its sixth straight session of declines while the NASDAQ and S&P 500 are in their fifth.
"Investors can't buy the dip, can't buy the dip. There is no confidence," said Gregori Volokhine of Meeschaert Financial Services. "The problem with the market is that it doesn't see what the good news would be that would allow it to rebound," he summarized. "And if we don't buy when it goes down, it may continue to go down..."
Bitcoin also suffered from the economy's woes, losing more than 50% of its value since its last peak. Technology stocks continued to plummet, still hurt by rising rates. Meta Platforms and Alphabet were down 3.7% and 2.8% respectively. Amazon (-5%), Apple (-3%) and Netflix (-4%) all fell, as did Tesla and Nvidia, which plunged more than 9% each.
The rise in the U.S. dollar to a 20-year high also put pressure on the markets. Oil fell 6%, still affected by the containment in china and lower demand as the country is the world's second largest consumer and largest importer of crude oil.
Tuesday was another tough session for the markets. The Dow closed down 84 points. The S&P 500, however, ended the day up slightly by 0.25% and the NASDAQ rose by 0.98%. The latter managed to hold its own thanks to a rebound in stocks from the technology sector; Microsoft and Apple gained more than 1%, and Intel and Salesforce added more than 2%.
"So far, this weakness has been driven by growth, technology and rotations, and while we expect further weakness and even underperformance, we are now seeing troubling signs that the value space may be on the verge of setting a significant absolute top, while some key defensive sectors are also threatening to peak," wrote David Sneddon of Credit Suisse.
Wednesday was another roller coaster session for the indices, which went from green to red throughout the day. The Dow closed down 1.02%, the S&P 500 was down 1.65% while the NASDAQ fell 3.18%. The release of the CPI consumer price index before the market opened, which came in at 8.3% in April, down from 8.5% in March, but higher than the 8.1% expected by economists, had investors worried.
Technology stocks had another rough session, slowing NASDAQ gains. Meta Platforms (-4.5%), Apple (-5.2%), Salesforce (-3.5%) and Microsoft (-3.3%) all fell as investors continued to rotate out of growth areas. The information technology and consumer discretionary sectors lost more than 3%, taking the S&P 500 with them. Tesla stock lost 8.25% as the company posted a 23% decline in capitalization.
Strategist Michael Wilson, who has long been skeptical of the meteoric rise in U.S. stocks over the past decade, said in a note that even after five weeks of declines, the S&P 500 is still mispriced for the current environment of Fed tightening policy that is slowing growth.
"We continue to believe that the U.S. equity market is not priced for this slowdown in growth from current levels," Wilson said in a note. "We expect equity volatility to remain elevated over the next 12 months."
According to many analysts, the S&P 500 could retreat further toward 3,600 points - down 10% from Tuesday's close - before reaching an important technical support level. Historically, the 200-week average since 1986 has seen the index rebound during major bear markets, with the exception of the tech bubble and the global financial crisis.
Coinbase's stock fell 26.4% after disappointing results revealed a drop in its monthly user base and reported lower transaction volumes than in the fourth quarter. Its stock has lost more than 75% of its value since the beginning of the year.
Indeed, the cryptocurrency industry has not been spared from the recent financial market crash. A massive cryptocurrency sell-off wiped more than $200 billion of market wealth in just 24 hours.
In one day, the Terra cryptocurrency has lost more than half its value while Bitcoin is down 30% in a month and down 60% since its last peak. Fans of these currencies claim that the currency is a safe haven from inflation. However, the economic context in which we are swimming, "has sent shockwaves through the tech sector that has dragged cryptos down, confirming that bitcoin and others are not really used to fight inflation," comments Victoria Scholar, analyst at Interactiv investor.
Indices were still trading in a rather volatile environment on Thursday as investors were still unable to find a balance. The Dow was down 0.33% at 31,730.30 points, the NASDAQ was down 0.06% at 11,370.96 points while the S&P 500 gave up 0.13% at 3,930.08 points. Earlier in the session, the markets attempted a rebound as investors rushed to the downside, but it was short-lived.
"Even if you say we're in a bear market, there are rallies within bear markets that can be very strong," Truist's Keith Lerner said of the market's early moves. "I think, at least in the short term, and given how oversold we are and given that we're starting to see people nibble away at some of these areas that have been the most beaten down, I think it's at least a silver lining in a sea of red and darkness over the last few days."
Markets opened Friday's session higher, attempting a rebound after another difficult week.
No need to panic
The fall of the last few weeks, or even months, can become worrying. The markets are failing to perform and the cryptocurrency sector is also experiencing the same fate.
According to many investors, the correction was necessary after a rather strong rally over the past few years. Think of the technology companies that have accumulated huge profits over the past few years. Their stock values have exploded to almost exaggerated levels while they have been safe havens for many investors during the pandemic. According to some analysts, it was high time for these companies to come back to earth. Meta (Facebook) has lost more than 40% this year while Netflix has lost 70% of its value.
Then there are the stocks that outright doubled or tripled during the pandemic as investors flocked to stocks that specialized in telecommuting, the cloud or e-commerce. Take Zoom, for example, a popular app from the first containment that accumulated gains of 390% in 2020. Its stock is down more than 80% from its all-time high in October 2020.
Economists agree that despite everything, the economy remains robust. If you are looking for a job, there are jobs available in most sectors. It is still possible to borrow money, and at low rates despite the latest increase.
If we take a closer look at the last major crises, there is food for thought. Because, obviously, this is not the first or the last bearish period.
Source: Autorité des marchés financiers
In short, historically, investors who have remained patient during the last few crises have come out on top.
Peloton
The pandemic darling, one of the most traded stocks during the lockdown as many began to work out at home, continues to widen its losses. The company unveiled disappointing quarterly results Tuesday, announcing lowered guidance. Peloton expects fourth-quarter revenue of $675 million to $700 million, well below analysts' estimate of $820.9 million.
Peloton expects a drop in sales, due to a drop in demand for its products, while the company believes it will have to increase the price of its subscriptions, which will certainly cause it to lose customers.
Since the containment ended, the company has lost more than 80% of its value, with its stock now trading at $11.25 in early New York trading after closing Monday at $14.13. It is down 60% year-to-date and ended Tuesday's session down 8.70%.
Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
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