Week in Review: S&P 500 briefly enters bear market territory
The S&P 500 fell 3.1% this week, which featured disappointing corporate updates and economic data that stoked growth concerns. The Nasdaq Composite underperformed with a 3.8% decline, followed by the Dow Jones Industrial Average (-2.9%) and Russell 2000 (-1.1%).
The consumer staples (-8.6%) and consumer discretionary (-7.4%) sectors were the weakest links as high-profile retail companies Walmart (WMT), Target (TGT), and Ross Stores (ROST) each cited sticky cost pressures for their disappointing results and cautious outlooks. Investors were concerned about the durability of the consumer in the high-cost environment.
Conversely, the utilities (+0.4%), health care (+0.9%), and energy (+1.1%) sectors each ended the week in positive territory.
There were plenty of rebound efforts throughout the week amid a contrarian-minded sentiment rooted in the oversold nature of the market and by a BofA Global Fund Manager Survey that showed cash levels at their highest position (6.1%) since 9/11 and the largest underweight position in equities since May 2020.
Arguably, the most important rebound effort was at the end of the week, which took the S&P 500 out of bear market territory (-20% from a recent high). Unfortunately, though, growth concerns fueled by persisting inflation and supply chain disruptions were the dominant issue for the market.
Like Walmart, Target, and Ross Stores, Home Depot (HD) was pressured by higher costs, evident by an 8.2% yr/yr decline in customer transactions in the first quarter. Cisco (CSCO), Applied Materials (AMAT), and Deere (DE), meanwhile, highlighted supply chain problems in their earnings reports.
On top of that, this week’s economic data was relatively disappointing:
- The May Empire State Manufacturing Survey turned negative with a reading of -11.6
- Weekly initial claims were higher than expected at 218,000
- The Philadelphia Fed Index dropped to 2.6 in May
- The Conference Board’s Leading Economic Index (LEI) decreased 0.3% m/m in April
- Existing home sales fell 2.4% m/m in April to a seasonally adjusted annual rate of 5.61 million
- Building permits for April fell 3.2% m/m to 1.819 million
- The Weekly MBA Mortgage Applications Index fell 11.0%
Fed Chair Powell spoke on inflation this week, saying the Fed will be more aggressive with rate hikes if inflation doesn’t come down in a clear way, but that the Fed can be less aggressive if inflation does clearly come down.
The 10-yr yield dropped 15 basis points to 2.79% while the 2-yr yield decreased one basis point to 2.58%.
Source: Briefing Investor