Simply put, this was an ugly week for the stock market, marred by an inclination to sell into strength. 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 Goldman Sachs (GS) amid higher compensation costs, Netflix (NFLX) amid higher programming costs, and PPG Industries (PPG) amid higher raw material costs. To be fair, several companies, including Procter & Gamble (PG), 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 Peloton (PTON) the day before when CNBC 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