Source: Zhitong Finance
Author: Li Juncheng
The U.S. Federal Reserve’s lacklustre results on Friday underscored economic risks in a high-inflation environment as dismal results from retailers led by Walmart (WMT.US)$ and Target (TGT.US) The S&P 500 fell more than 20% from its record high in January this year and fell into a technical bear market. Since then, it has risen in late trading to erase the intraday losses and temporarily escape the bear market.
This week, traders will be watching for the S&P 500 (.SPX.US) to close at 3,837.24, confirming the index is heading for its first bear market since 2020. In addition, investors will be closely watching this week’s inflation data, as well as more upcoming earnings results from retail stocks, for the direction of the market’s future direction.
When will US stocks bottom?
It is reported that the S&P 500 fell below 3,837.24 points on Friday, falling into bear market territory, but did not close there. Some investment banking professionals believe it is a bear market if an index is down 20% intraday, but others insist the index must close at that level to signal a bear market. While there is no official word on what a bear market looks like, strategists agree that the extent of the bear market, or how long it takes for stocks to bottom, depends entirely on how the economy performs.
But in any case, this is the largest recession since the rapid bear market decline in March 2020 when the pandemic began.
“The whole thing comes down to whether there is a recession,” said Julian Emanuel, head of equity, derivatives and quantitative strategy at Evercore ISI. “Looking back at history, in the past three bear markets without a recession, the S&P 500 has lost an average of 21.3%. , we are basically at that level right now. And in the last three bear markets with recessions, the average decline was 47.9%. Those were in 2000, 2008, and 2020.”
More retail earnings to follow
Last week, big-box retailers Walmart and Target spooked investors by lowering their forecasts and telling investors their inventory pipeline had swelled. Target lost a quarter of its market value, and Walmart shares fell 20% — the biggest drop since the 1987 crash. The companies also dragged down the entire retail sector — the $Retail Index ETF-SPDR S&P (XRT.US)$ fell more than 9% last week.
Brian Jacobsen, senior investment strategist at Allspring Global Investments, said: “So far this year, investors have struggled with the Fed, geopolitical factors, and policy in some areas. Over the past week, we had to add one more factor, the big retailers. profit margins. Businesses have to deal with rising input costs, consumers being impacted by high prices and shifting consumption patterns.”
More retailers will report this week, including Ulta Beauty (ULTA.US), Macy’s (M.US), Dick’s Sporting Goods (DKS.US), Dollar General (DG.US) and Discounter Dollar Tree Inc (DLTR.US) and others, the earnings reports could give investors a clearer picture of the state of the U.S. consumer and the resilience of corporate earnings amid persistent inflation.
“Any retailer reporting results in this environment is cause for concern for investors, given what we’ve seen this week,” Emanuel said.
Eva Ados, chief operating officer of ER Shares, also said: “When we look at the news in consumer discretionary and consumer staples, it shows that businesses of all sizes are struggling. Ironically, these industries (consumer discretionary and consumer staples) are struggling. Consumer Staples) is seen as a safe haven during a downturn, but unfortunately, we don’t have a safe haven.”
A number of heavy economic data hit this week
It is reported that the US Bureau of Economic Analysis will release new personal consumption expenditure (PCE) data at 20:30 Beijing time on Friday. The PCE, the Fed’s preferred inflation measure, will provide the market with an update on how quickly prices are rising across the United States. Economists expect personal consumption expenditures to slow slightly, with a monthly increase of 0.2% in April, down from 0.9% the previous month. It was still the 17th straight month of gains for the index and was up 6.2% from a year earlier.
In other economic data, the revised annualized quarterly rate of real GDP in the first quarter of the United States will be released at 20:30 Beijing time on Thursday. U.S. GDP contracted at an annualized rate of 1.4% between January and March, as lingering supply chain imbalances, inflation and geopolitical factors weighed on growth. Economists expected the revised forecast for a contraction of 1.3%.
In addition, the Federal Reserve is scheduled to release the minutes of its May 4 meeting on Wednesday, ET, from which investors will learn about policymakers’ views on the direction of interest rates in 2022. Uncertainty over the pace and magnitude of Fed rate hikes has weighed on stocks as investors expect a slowdown amid signs that inflation has become entrenched in the economy.
Summarize
The S&P 500 has just ended its seventh consecutive weekly decline, the longest losing streak since 2001, and the market’s biggest concern is undoubtedly the recent turmoil in financial markets. In this regard, Evercore ISI strategist Emanuel said that the market is in the process of bottoming, but in the medium to long term, we will continue to see stock prices rise through the end of this year.
Referring to the slew of retailer earnings coming this week, the strategist said: “Given last week’s collapse from Walmart and Target, the market will be very sensitive to any bells and whistles coming out of retail earnings. But it’s going to be absolutely critical for the market to respond in a positive way to whatever these retailers report.”
edit/ping
This article is reprinted from: https://news.futunn.com/post/15767954?src=3&report_type=market&report_id=206382&futusource=news_headline_list
This site is for inclusion only, and the copyright belongs to the original author.