The Week in Review 4/25/22

All things are difficult before they are easy. ~ Thomas Fuller

Good Morning,

The S&P 500 dropped 2.8% this week, unable to get past concerns about rising rates and the Fed's hawkish mindset. The Nasdaq Composite (-3.8%) and Russell 2000 (3.2%) underperformed the benchmark index with losses over 3.0% while the Dow Jones Industrial Average fell 1.9%.

It was reported last week that bullish sentiment among individual investors recently hit a 30-year low, setting the stage for a contrarian-minded rally this week. The rally took place on Tuesday, and briefly continued on Thursday, before a bearish sentiment took hold of the market.

Nine of the 11 S&P 500 sectors closed lower with the worst performers being the communication services (-7.7%), energy (-4.6%), and materials (-3.7%) sectors. The defensive-oriented real estate (+1.2%) and consumer staples (+0.4%) sectors ended the week in positive territory.

The market had done a good job fending off the Netflix disappointment in which NFLX tanked 35% the day after reporting a decline in subscribers. Earnings reports, after all, were mostly better than expected, and they were from a diversified batch of companies, including Tesla and seven Dow components.

The problem last week was mainly threefold…

• the 10-yr yield rapidly approached 3.00%, hitting 2.97% before ending the week eight basis points higher at 2.91%.
• Fed Chair Powell wasn't ready to declare peak inflation and said the Fed could move to a tight policy after reaching a neutral rate. 3) weakening technical factors.

On the latter, the S&P 500 couldn't stay above its 200-day moving average (4497) and fell back below its descending 50-day moving average (4407).

The Fed isn’t helping matters… beginning with Chicago Fed President Evans, who is one of the move dovish Fed members and was supposed to be a FOMC voter next year, announced plans to retire in early 2023. In addition, St. Louis Fed President Bullard (FOMC voter) said the fed funds rate should be at 3.50% by the year-end.

The 2-yr yield, which is sensitive to expectations for the fed funds rate, climbed 27 basis points to 2.72%.

Market Update…

• Oil Prices - Oil prices slipped last Friday with a weekly loss of nearly 5% on the prospect of weaker global growth. West Texas Intermediate crude declined 1.7% and closed at $102.07 per barrel.
• Gold - Spot gold was down 0.9% to $1,933 per ounce while U.S. gold futures slipped 0.7% to $1,934 per ounce. Silver finished the week at $24.259.
• S. Dollar - The dollar index hit 101.33, the highest since March 2020. Thus far this year, the dollar index has gained 5.7%. Euro/US$ exchange rate is now 1.09.
• S. Treasury Rates - On Friday, the benchmark 10-year U.S. Treasury yield dipped slightly to around 2.9%.
• Asian shares were down sharply in overnight trading.
• European markets are trading lower.
• Domestic markets are trading in the red again this morning.

Despite the broad market sell-off, some individual stocks have performed well on strong earnings reports.

Of the 87 S&P 500 companies to report, 80% have beaten estimates. _{(Source: Bloomberg).}

Companies like Tesla have reported record earnings and several airlines have reported that higher ticket prices have not scared away eager travelers. It appears that consumers are absorbing higher prices for goods and services for the time being.

This week promises to be the busiest week of this latest earning season with 185 S&P 500 companies reporting. We will hear from companies across the spectrum. PepsiCo, UPS, Microsoft, Alphabet, Aflac, Ford, Merck, Meta, McDonald's, Caterpillar, Boeing, Visa, General Electric, Comcast, Chevron, Apple, and Amazon, but tech stocks will be the main focus.

Some companies are not waiting for their earnings announcement to reveal their plans for the future. Amazon announced that it will be implementing a 5% fuel and inflation surcharge in order to offset rising costs. This follows companies like Uber and Lyft, which have implemented similar measures, charging additional fees for rides and delivery orders.

Previous concerns about earnings have been set aside temporarily with a better-than-expected first two weeks of earnings season. There is still a long way to go, but some mild optimism may be in order.

Volatility should continue as the market absorbs inflation and a rising interest rate environment. We're cautiously optimistic moving forward.

Some headwinds are prevalent, but the U.S economy is still strong, backed by a strong jobs market that is supporting the U.S. consumer. The personal consumer expenditures index, the Fed’s preferred measure of inflation, will be released before the opening bell on Friday.

Have a wonderful week!

The opinions expressed herein are those of Michael Hilger and not necessarily those of Raymond James & Associates, Inc., and are subject to change without notice. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forcasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

The information contained herein is general in nature and does not constitute legal or tax advice. Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. The Dow Jones Industrial Average (INDU) is the most widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials. The Dow Jones Transportation Average (DJTA, also called the "Dow Jones Transports") is a U.S. stock market index from the Dow Jones Indices of the transportation sector, and is the most widely recognized gauge of the American transportation sector. Standard & Poor's 500 (SPX) is a basket of 500 stocks that are considered to be widely held. The S&P 500 index is weighted by market value, and its performance is thought to be representative of the stock market as a whole. The NASDAQ Composite Index (COMP.Q) is an index that indicates price movements of securities in the over-the-counter market. It includes all domestic common stocks in the NASDAQ System (approximately 5,000 stocks) and is weighted according to the market value of each listed issue. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks.

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