Weekly Market Recap

Published Apr. 30, 2022


Dow Jones S&P 500 Nasdaq
32,977 (-2.24%)
4,131 (-2.90%)
12,334 (-3.25%)

As Amazon drags on the S&P 500, it falls to its lowest closing since 2022

The main indices fell for the fourth week in a row, as growth concerns were exacerbated by some poor earnings announcements from Amazon.com, which has a large weighting in several key indexes. The S&P 500 Index slipped into correction territory, down nearly 14% from its previous top, while the technology-heavy Nasdaq Composite and small-cap Russell 2000 Index plummeted into bear markets, down roughly 24% from their highs. Following Russia’s announcement that it will suspend natural gas deliveries to Poland and Bulgaria, energy equities outperformed the S&P 500.
The geopolitical and macroeconomic worries that have dominated mood in recent weeks continued.. In Wednesday’s trade, major earnings results from Microsoft and Alphabet, Google’s parent firm, essentially offset each other, with strong outlook from the former helping to compensate for an earnings letdown from the latter.
Following contradicting earnings announcements from two other mega-cap corporations, Amazon and Apple, on the previous evening, a similar dynamic looked to be poised for Friday trade. Amazon shares fell 14% after the firm startled investors by reporting its first quarterly loss since 2015, owing in part to poor online sales. Apple stock surged initially on news that it had earned record sales in the previous quarter, but cautious advice for the current quarter due to supply chain issues seemed to drain the gains later in the day.

The economy contracts as inventories are depleted, and the trade imbalance is at an all-time high.

The week’s economic statistics provided ammo for those forecasting “stagflation” or reducing pricing pressures in the coming months. The greatest data surprise may have been the Commerce Department’s early estimate that the economy declined at an annualized pace of 1.4 percent in the first quarter, significantly below consensus predictions of a 1.0 percent increase. However, falling inventory investment and a record trade deficit were primarily to blame, and most economists agreed that solid consumer spending (up 2.7 percent) and business investment (up 7.3 percent, well above expectations) indicated that it was too early to conclude that the data signaled the onset of a recession—often defined as two consecutive quarters of economic contraction.

Other economic data revealed that the economy was still expanding. Core capital goods orders (excluding military and aviation) increased by 1.0 percent in March, above consensus estimates, while personal expenditure increased by 1.1 percent, exceeding predictions for a 0.7 percent gain. Some inflation figures may have been promising. The year-over-year growth in the Federal Reserve’s preferred inflation measure, the core personal consumption expenditures (PCE) price index, slowed to 5.2 percent in March, the first decrease in more than a year. The year-over-year headline PCE metric increased to a 40-year high of 6.6 percent, but it also fell short of expectations. Despite the tight labor market, the employment cost index climbed 1.4 percent in the first quarter, above forecasts.

Crossover buyers are moving into municipal bonds.

After falling earlier in the week, the yield on the benchmark 10-year U.S. Treasury note finished almost where it started, appearing pushed upward on Friday by positive consumer spending figures. (Trends and bond prices move in different directions.) Cash withdrawals from municipal bond portfolios throughout the sector hampered the tax-exempt market, which generated somewhat negative returns and trailed Treasuries for the most of the week. However, our traders observed that, as a consequence of the market’s prolonged underperformance against US government debt, more appealing municipal-to-Treasury yield ratios resulted in higher demand from crossover buyers—those who generally invest in taxable bonds.

The investment-grade corporate bond market, according to our traders, traded down as geopolitics, a decline in consumer confidence, and mixed corporate earnings reports impacted on mood. The volume of new issuance was low and fell short of forecasts. Later in the week, our traders saw that recent fresh issuance and liquid bonds outperformed older bonds. High yield bonds fell as well, with higher-rated bonds outperforming lower-quality issues, while commodity price gains boosted the performance of the energy sector. In the early part of the week, a few fresh transactions were revealed.

Our traders also saw that the weakening in the bank loan market seemed to be due to purchasers taking a break rather than big selling. They did highlight, however, that the market was still seeing sellers of higher-dollar-value and lower-quality loans wanting to take advantage of favorable prices in high yield bonds. Building items and sectors that are more vulnerable to inflationary pressures did poorly as investors cut their exposure to those market segments.


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