Week in Review: S&P 500 Almost a Bear

Week in Review: S&P 500 almost entered bear market territory 

Each of the major indices fell more than 2.0% this week, as the market remained pressured by growth concerns, heightened volatility, and downwards momentum. The Nasdaq Composite lost 2.8%, the Russell 2000 lost 2.6%, the S&P 500 lost 2.4%, and Dow Jones Industrial Average lost 2.1%.

Ten of the 11 S&P 500 sectors closed lower and five of which fell more than 3.0%, namely information technology (-3.5%), consumer discretionary (-3.4%), financials (-3.6%), and real estate (-3.9%). The consumer staples sector escaped the week with a 0.3% gain.

Growth concerns were heightened by the following developments:

• Expectations for the Fed to remain on its aggressive tightening plans amid inflation data that remained elevated
• Russia threatened retaliation if Finland follows through with plans to join NATO
• Early reports that indicated Shanghai was again tightening COVID-19 restrictions, although there was hope that those restrictions would soon ease later this month
• The IEA lowered its global growth oil demand forecast, and Saudi Arabia, according to Bloomberg, cut oil prices for Asian buyers due to weak demand
• Walt Disney (DIS) warned that Disney+ subscriber growth is apt to slow down in the second half of the year
• A slew of high-growth story stocks continued to disappoint with earnings and/or guidance like Coinbase Global (COIN), Unity Software (U), Fiverr (FVRR), Peloton (PTON), Upstart (UPST), GoodRx (GDRX), Sofi Technologies (SOFI), and Palantir (PLTR)
• Uber (UBER) was planning to cut costs, according to CNBC

While inflation remained hot, the peak inflation narrative was revived by a better-than-feared core PPI reading for April, a moderation in the year-over-year increases in CPI and PPI for April, a flat m/m change in import prices for April, and a downwardly revised 4.1% increase (from 4.5%) in export prices for March.

Growth concerns, peak inflation hopes, and a general flight to safety contributed to increased demand for Treasuries, which drove yields lower in a curve-flattening trade this week. The 2-yr yield dropped eight basis points to 2.59%, and the 10-yr yield dropped 18 basis points to 2.94%. The U.S. Dollar Index rose 0.9% to 104.57.

Sentiment was further pressured by the S&P 500 temporarily breaking below 4,000; weakness in the mega-caps including Apple (AAPL), which temporarily lost its position as the world’s most valuable company by market capitalization; and the heightened volatility as investors sold into early rally efforts.

The one rally effort, however, that didn’t get sold was the one at the end of the week after the S&P 500 almost entered bear market territory (it was down 19.9% from its all-time high). That key level was a presumed indicator that it was time for an overdue bounce.

Separately, Fed Chair Powell, St. Louis Fed President Bullard (FOMC voter), Cleveland Fed President Mester (FOMC voter), San Francisco Fed President Daly (non-voter) each said they prefer 50-bps rate increases instead of 75-bps. Treasury Secretary Yellen, meanwhile, said she doesn’t think the huge losses in stable coins will cause systemic issues for the financial system.

On a related note, the Senate confirmed Fed Chair Powell for a second term and confirmed Lisa Cook to the Fed Board. Lorie Logan was named Dallas Fed President, effective Aug. 22.

Source: Briefing Investor