This year has so far proved volatile for Wall Street. Stocks have not done well in 2022.
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Stocks sank on the last day of April, with the Dow dropping almost 1,000 points—and the S&P 500 capping off its worst four-month start to a year in more than half a century.
The Dow Jones Industrial Average on Friday fell 939 points, or 2.8%, after climbing 614 points on Thursday. The S&P 500 and the Nasdaq Composite fell 3.6% and 4.2%, respectively, after they each rallied more than 2.5% on Thursday.
The S&P 500 has fallen 13.3% so far this year, for its worst January to April performance since 1939, according to Dow Jones Market Data. The Nasdaq is now trading in a bear market, down more than 20% from the all-time high of 16,057, hit on Nov. 19. The tech-heavy index had its worst first four-month start to a year on record.
While the Nasdaq got hit the hardest Friday, stocks were way down across the board. That isn’t a surprise: There have been dozens of 2% daily gains in the S&P 500 since 2018, and the next day only saw the index gain just a third of the time, according to Instinet.
The larger concern for stocks? The Federal Reserve is expected to aggressively lift interest rates to stave off high inflation, a move that will likely slow down economic growth, and reduce its bond holdings, which has lowered bond prices and lifted their yields. That makes future profits for companies worth less today, thus weighing on stock valuations.
Inflation—the impetus for all of this—has only worsened with the Russia-Ukraine war. That has prompted Western nations to block off Russian commodities from the global market, putting even more strain on consumers and corporate profit margins. Lockdowns in China are also blocking off global access to supplies coming out of the nation.
Indeed, the personal consumption expenditures index, the Fed’s preferred measure of inflation, gained 6.6% year over year in March, according to the Commerce Department on Friday. Investors had been hoping that inflation would have peaked, but that rate is higher than the 6.4% gain in prices seen for February.
“With global markets down double-digits this year, and daily headlines that include worsening China lockdowns, the ongoing Russia-Ukraine war, a global economic growth slowdown, multi-decade highs in inflation, and the Federal Reserve on the move, it’s little wonder why investors’ mood remains dour,” wrote Keith Lerner, co-chief investment officer at Truist.
There is good news, though. The core PCE result, which does not account for volatile—and recently soaring—energy and food prices, gained just 5.2% in March. That’s below the previous result of 5.3%. It means prices across the board are rising at a slower pace.
That could conceivably ease the pressure on the Fed to hike interest rates aggressively, which investors would welcome. The Fed will announce its interest-rate decision next week.
The bond markets appeared relatively calm. The 2-year Treasury yield, which reflects market expectations for the benchmark lending rate a couple of years from the present, was up a touch to 2.72% from around 2.7% before the PCE report came.
The mild rise in the yield isn’t much of a surprise. Yields have already reflected the Fed’s intention to lift rates. The 2-year Treasury yield is up several times from a level just over 0.1% in January of 2021. The yield has now seen its largest 15-calendar month gain since the same stretch ended in January 1995, according to Dow Jones Market Data.
As for why the Nasdaq was so much worse off than the other two indexes: Amazon (ticker: AMZN) and Apple (AAPL) were both down significantly after earnings. As of Thursday’s close, the two companies had a combined market capitalization of $4.14 trillion, about 20% of the Nasdaq’s aggregate market cap.
Amazon’s profit missed estimates by nearly one dollar a share because of higher labor and shipping costs in the quarter. The company also gave weak sales guidance for the current quarter. The stock dropped 14.1% on Friday.
Apple’s profit and sales of $97.3 billion exceeded estimates, but the company said supply constraints in China resulting from the country’s Covid-related lockdown could reduce second-quarter sales by between $4 billion to $8 billion. The stock dropped 3.7% on Friday.
Here are six stocks on the move Friday:
Tesla (TSLA) was up initially, before finishing down 0.8%, after CEO Elon Musk said via Twitter that he had no further plans to sell Tesla stock after Friday. The billionaire executive recently sold some $4 billion worth of the company’s shares, presumably to help fund his takeover of social-media group Twitter (TWTR).
Colgate-Palmolive (CL) stock dropped 5.1% after the company reported a profit of 74 cents a share, in line with estimates, on sales of $4.399 billion, above expectations for $4.398 billion.
Chevron (CVX) stock was down 3.2% after the company reported a profit of $3.36 a share, missing the FactSet consensus estimate of $3.41 a share, on sales of $54.4 billion, below expectations for $47.9 billion.
Exxon Mobil (XOM) stock was down 2.2% after the company reported a profit of $2.07 a share, missing estimates of $2.23 a share, on sales of $90.5 billion, below expectations for $92.7 billion.
AbbVie (ABBV) stock dropped 6.0% after the company reported a profit of $3.16 a share, beating estimates of $3.14 a share, on sales of $13.5 billion, below expectations for $13.6 billion.
Intel (INTC) stock fell 6.9% after the company reported a profit of 87 cents a share, beating estimates of 81 cents a share, on sales of $18.35 billion, above expectations for $18.31 billion.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com and Jack Denton at jack.denton@dowjones.com
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