Simply put, this was an ugly week for the stock market, marred by an inclination to sell into strength.<!–more–> The Dow Jones Industrial Average fell 4.6%, the S&P 500 fell 5.7%, the Nasdaq Composite fell 7.6% and entered contraction territory, and the Russell 2000 fell 8.1% and approached bear market territory.
The S&P 500 consumer discretionary sector was the weakest sector with an 8.5% decline, followed by the information technology (-6.9%), and communication services (-7.1%) sectors with 7% declines. The utilities sector outperformed on a relative basis with a 0.8% decline.
The main selling drivers were arguably concerns about profit margins, a fear of being in high-multiple growth stocks that provide disappointing news, anxiety surrounding the Fed’s tightening plans, and even the selling itself (which fueled more selling).
Profit-margin concerns were stoked by <strong>Goldman Sachs </strong>(<strong>GS</strong>) amid higher compensation costs, <strong>Netflix </strong>(<strong>NFLX</strong>) amid higher programming costs, and <strong>PPG Industries </strong>(<strong>PPG</strong>) amid higher raw material costs. To be fair, several companies, including <strong>Procter & Gamble </strong>(<strong>PG</strong>), displayed the pricing power to overcome higher costs.
Picking on Netflix, the stock plunged 22% on disappointing Q1 guidance, which mirrored the 24% drop in <strong>Peloton </strong>(<strong>PTON</strong>) the day before when <em>CNBC </em>reported that the company was pausing production of its bikes due to lower demand. Note, Peloton said the report was inaccurate.
Even though Peloton was already down huge from all-time highs, as was Netflix to a lesser extent, prior to the disappointing news, the fact that the stocks took a huge beating signaled to investors that other beleaguered growth stocks could still face similar paths this earnings season.
Interest rates were a problem early in the week, as the 2-yr yield brushed up against 1.08% and the 10-yr yield brushed up against 1.90%, but a retracement late in the week provided no moral support. That was likely because the move into Treasuries was driven by a fear of stocks going down.
On a week-over-week basis, the 2-yr yield increased three basis points to 0.99%, and the 10-yr yield decreased two basis points to 1.75%. The U.S. Dollar Index rose 0.5% to 95.63. Oil prices ($85.16/bbl, +1.29, +1.5%) edged higher amid geopolitical tensions.
The S&P 500 ended the week below its 200-day moving average (4429).
Week in Review provided by Briefing Investor