(Justin Vaughn, Editor, Options Trading Report)
Worries about slowing corporate earnings (so far most incoming earnings look good) and Federal Reserve’s plan to rapidly raise interest rates, dragged the Dow Jones Industrials to their worst day since 2020. Friday’s declines, which worsened throughout the day undid gains from earlier in the week, affecting all markets. The broad-based S&P 500, fell at least 1% for the third consecutive, while the tech-focused Nasdaq Composite Index lost at least 2% for the third straight week. Bond yields extended their gains, rising for three consecutive weeks. Investors this past week closely examined corporate first-quarter financial results from a range of firms, looking for clues about the health of the economy, the consumer outlook, and companies’ abilities to cope with inflation. Ironically of the companies that have far reported, about 80% have beaten analyst expectations, according to FactSet, which provides some stability to the U.S. stock market. Those numbers, are sometimes ‘not enough to dissuade the technical investor.’ The Dow Jones Industrial Average posted its worst one-day percentage change since October 2020, losing 2.8% or 981 points to close at 33811. The S&P 500 dropped 122 points or 2.8% to 4272, while the Nasdaq Composite fell 335 points or 2.6% to finish at 12839. The recent rise in government-bond yields slowed signs of ‘steadying with the yield on the 10-year Treasury note ending Friday at 2.905%, down two of the past three days. Bond yields rise when prices decline. “The market is finally internalizing and factoring in the reality that the Fed really means what it says, and it’s not going to back down,” says Tom Courtney, Chief Investment Officer of Exemial Wealth Advisors. “Somebody had a saying and it’s pretty good: ‘You don’t fight the Fed when the Fed is fighting inflation.’ ”
In Commodities, Brent Crude, the international benchmark for oil, fell $1.68 a barrel, or 1.6% to $106.65. It fell 4.5% this past week.
Fertilizer Costs Surge As War Disrupts Supply…Fertilizer costs have roughly doubled from their level a year ago, as the war in Ukraine has disrupted the flow of supplies from Russia, the world’s largest exporter of the commodity. That has contributed to higher global prices for food, especially corn. Russia and Belarus, which have been sanctioned by some nations for providing aid to Russia in its invasion of Ukraine, account for about 40% of global potash exports. Belarus can’t get its product out of the Port of Klaipeda in Lithuania because of sanctions. Recently Russia decided to suspend all fertilizer exports. That has contributed to overall higher fertilizer costs….happy to deal with that and cut Putin’s pocketbook.
Some of the Pandemic’s Hot Stocks Are ‘Cooling’ Now….These stocks got hot in the pandemic. The pandemic ‘spawned’ a wave of stockmarket ‘stars.’ Some are coming back to earth. The universal spread of the Covid-19 virus changed the way people worked, shopped, dined, and relaxed, helping companies such as video conferencing ‘star’ Zoom Video Communications Inc. and streamer, Netflix, a couple of high flyers for a couple of years. Netflix has lost viewers and profit as the streaming industry is filling up and consumers are trekking back to theatres. Netflix shares were 25% lower in after-hours trading. Through Tuesday’s close, the stock has declined by more than 40% so far this year. The company ended the first quarter with 200,000 fewer subscriptions than it had in the fourth. Netflix blamed password sharing among its members and increased streaming competition for creating what it called “revenue growth headwinds.” Netflix estimated that besides its almost 222 million paying households, the service is being shared with an additional 100 million homes including 30 million in the U.S. and Canada. “Covid clouded the picture by significantly increasing our growth in 2020, leading us to believe that most of our slowing growth in 2020 to 2021 was due to the Covid pull forward,” the company said in its letter to shareholders. The subscription decline brought Netflix’s paid global subscriber base to 221.6 million, down from 221.8 million in the prior quarter. Net profit was $1.6 billion, down from $1.7 billion a year earlier. Netflix shut Russia down, with 700,000 customers sad. “Over the longer term, much of our growth will come from outside the U.S., Netflix said.
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RUMBLINGS ON THE STREET
Jerome Powell, Federal Reserve Chairman, Barron’s “It is appropriate in my view to move a little more quickly…I would say 50 basis points will be on the table for the May meeting.”
Christopher Smart, chief global strategist and head of the Barings Investment Institute, Barron’s “The real logic at this stage (The Ukraine War) is to create enough suffering to encourage regime change.” (Russia)
Randal W. Forsyth, Lead writer, UP & DOWN WALL STREET, for Barron’s “The stock market moves almost in lockstep with the size of the Fed’s balance sheet. Since quantitative easing (the polite term for the Fed’s asset purchases with money electronically created out of thin air) became a policy tool 14 years ago, there has been a 91% correlation between the central bank’s balance sheet and the S&P 500 index,” he adds.
Mark Haefele, chief investment officer at UBS Global Wealth Management, in a note to clients, regarding releasing oil from reserves and the possibility of driving down oil prices in the short term, as analysts are skeptical that the releases can have a lasting effect. WSJ “WE do not regard it as a long-term solution in the global energy crisis, and it will not fix the structural imbalances in the oil market,” said Mr. Haefele.
THE NUMBERS
10.6M – Number of babies born in China in 2021, lowest since 1949 when the Communist Party took over
1.8M – Annualized U.S. privately-owned housing starts, seasonally adjusted, in March, highest since 2006, driven by demand
77 – Home Builders’ Housing Market Index in April, lowest in seven months, hurt by supply and worker issues
950K – Number of U.S. homes for sale at the end of March, down 9.5% from March 2021