Investors seek value as rising rates hurt growth stocks. U.S. equity performance was mixed in a shortened week as inflation and interest rates weighed on sentiment. Corporate earnings season accelerates, with Q1 reports due from companies in several key industry groups, including banks, trucking, airlines, metals, and technology. The Dow down 0.78%, S&P down 2.11%, and Nasdaq down 2.62%.
The S&P 500 declined for a second straight week as the market offered little optimism to investors with climbing inflation and mixed Q2 earnings reports. Materials were the best performing sector in the S&P 500 during the week while Information Technology lagged. The yield on the ten-year treasury bill climbed to 2.83%, over 100 basis points higher than a year ago. This dampened growth stocks during the week. Oil spiked over $10/barrel over three days as peace talks between Russia and Ukraine stalled. Energy stocks beat the market last week. J.P. Morgan kicked off the 2Q22 corporate earnings season with quarterly profit that was 42% lower than a year ago.
In economic news last week, key data included Retail Sales, the Consumer Price Index (CPI) and University of Michigan Consumer Sentiment. Retail Sales rose 0.5% in March, slightly below the consensus forecast and down from the previous month. Sales at gas stations accounted for much of the increase, with an 8.9% rise from the prior month. Not surprising given the jump in oil prices. The Consumer Price Index rose 8.5%, its highest rate since 1981, up from 7.9% in February. The sharp increase reflected an 11% jump in energy prices. Some economists believe that recent high inflation may be the peak. However, the March data is far above the Fed’s long-term 2% target and moving in the wrong direction. University of Michigan Consumer Sentiment rose to a better-than-expected 65.7 in April, up from 59.4 in February.
Week Ahead – Corporate Earnings
The stock market opens today with corporate earnings season ramping up. Banks and financial companies will lead off, including Bank of America and American Express, as well as many regional banks. Other companies reporting this week include IBM, Halliburton, Lockheed Martin, Johnson & Johnson, Tesla, Alcoa, Procter & Gamble, AT&T, Verizon, Netflix, American Airlines, and United Airlines. The wide range of reporting companies will help give economists a sense of how different sectors are weathering inflation, rising interest rates, and the impact of the war in Ukraine and economic sanctions on Russia.
Key economic data due this week include Housing Starts, Existing Home Sales, and Leading Economic Indicators (LEI). For Housing Starts, economists expect March to be down from February. For Existing Home Sales, the consensus also calls for March to be down from a month earlier. While the housing market has been red-hot for many years, it has started to cool in recent months. Housing could face further pressure from aggressive Fed rate hikes. Economists see LEI coming in at 0.3% for March, in line with the February rate.
Year-to-date index performance; Dow down 5.2%, S&P down 7.8%, and Nasdaq down 14.7% through the close on Friday.
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