Despite the nice rally last Friday – with the Dow rising over 460 points (1.5%), the S&P gaining about 2.4%, and the NASDAQ jumping nearly 4% – the major indices still finished in negative territory for the week. The Dow Jones Industrial Average fell 2.1% and is now in a 7-week losing streak. The NASDAQ Composite dropped 2.8% and the Standard & Poor’s 500 Index dropped 2.4%.
The stock market continues to be pressured by inflation, Federal Reserve interest rate hikes, and negative psychology/momentum. Fed Chair Jerome Powell commented last week that he couldn’t guarantee a soft landing (bringing down inflation without causing a recession). The University of Michigan Consumer Sentiment Index fell to 59.1 in May, below expectations of 64.1, and its lowest level in over 10 years – so we are seeing negative feelings translate into hard data.
Looking to the week ahead, it’s “retail week” as several big-name retailers are scheduled to report quarterly results. Familiar names reporting include Walmart, Home Depot, Lowe’s, Target, TJX Companies, BJ’s Wholesale Club, Kohl’s, and Foot Locker. Away from retail, we’ll be eying reports from Cisco Systems, Palo Alto Networks and Deere & Co. Checking in on earnings season: For the first quarter of 2022, with 91% of S&P 500 companies reporting actual results, 77% have reported a positive EPS (Earnings Per Share) surprise, and 74% have reported a positive revenue surprise, according to data from FactSet.
With several major factors in play, including inflation, Fed rate hikes, the Russian invasion of Ukraine, and lockdowns in China, we expect market volatility to remain with us for a while. Remember though, as painful as corrections and bear markets are, they don’t last forever!
All the best – Southport Station Financial Management, LLC