The three major stock indices (S&P, NASADAQ, and DOW) pushed higher on Monday and Tuesday of this week followed by a poor performance for the rest of the week. It was a steep decline, too.
After Tuesday, the S&P was up by 1.3% for the week, by the close on Friday it had given up those gains and more to end down 5.1% at 3,900.
Multiple developments happened this week that contributed to the poor performance:
- Chipmaker Intel (INTC) pointed to the weaker macroenvironment as they announced a temporary hiring freeze and another delay in the release of the Sapphire Rapids CPU.
- Scotts Miracle-Gro (SMG) reeled back on their FY22 EPS outlook to well below the analysts’ estimates. Their reasoning is that their fixed cost struggles is facing pressure due to replenishment orders falling short.
- Target (TGT) cut their Q2 operating margin guidance to around 2% just a few after stating that it would be 5.3%.
- The Reserve Bank of Australia and the Reserve Bank of India both raised their rates more than anticipated.
- Many districts in Shanghai were put into lockdown again for COVID testing.
- Total CPI increased 8.6% year-over-year in May. This marks the largest increase since December of 1981. The Core CPI was up 6%, down from the 6.2% we saw in April, however this is still far off from the Fed’s goal of 2.0% inflation.
The last bullet point of the CPI reading was the disappointing climax to an abysmal week. We saw other reserve banks this week pursue more aggressive policies against inflation. That paired with another disappointing CPI reading causes widespread concern that the US Fed will follow suit. If the Fed decides to be more aggressive against inflation, their actions could crush economic growth which in turn hurts earnings prospects for investors.
That concern was evident in the Treasury market and the stock market on Friday. Most note’s yields spiked almost a dozen to two dozen basis points. The S&P moved in turn and fell nearly 3% on Friday. All sectors of the S&P 500 had losses ranging from 0.9% to 6.8% with the financial sector getting hit the hardest.
Next week, we have lots of economic events on the calendar that could prove to be cause for a continued downtrend. Retail numbers and a Fed Policy Statement are set for Wednesday. Lots of eyes will be on the Fed meeting to see how the expected interest rate decision plays out. Investors expect half a point, but we very well could be surprised by a stronger stance from the increasingly hawkish Fed.
Aside from our Fed’s decision, there are lots of employment and GDP related statistics being released for many of the world’s strongest economies this next week. Whether these are received positively or poorly, expect those reactions to bleed into our market throughout this next week.
Stay informed, stay patient, and most importantly stay committed to your long-term plan! As dividend investors, markets like this allow us to buy discounted income, sometimes for an extended period of time. Be prepared for that! I was this week with my most recent buys which you can read in my most recent portfolio update.