The futures market started unevenly last night, continuing to fall after yesterday’s very weak stock market performance during regular trading hours. The major equity averages fell sharply throughout the day, as traders reduced their holdings on increased fears of an economic slowdown. The pessimism was fueled by a lower-than-expected consumer confidence report in April, alongside lackluster earnings outlooks in the latest quarterly reports of several companies. In particular, the NASDAQ Composite fell to a new 52-week low on a notable 514-point setback. The performance was not much better elsewhere, as the S&P 500 Index was off 121 points and the Dow Jones Industrial Average tumbled 809 points. The futures, as noted above, continued lower in the moments after regular trading ended, but then rebounded in the early evening, as several companies recorded better-than-expected earnings. The futures rallied overnight and were well into positive territory this morning, suggesting a strong rebound for stocks at the start of the trading day.
Overall, market breadth was extremely negative yesterday, with declining issues outpacing advancers by a five-to-one ratio. Consumer discretionary stocks were hit the hardest, as traders believe an economic slowdown is coming, with technology and communications equities performing little better. On the other hand, energy issues held up better than most, ending the day modestly in positive territory, thanks to higher oil prices.
In commodity news, oil quotations rose yesterday, despite a higher reported rig count, as the war in Ukraine is disrupting sales of oil from Russia to European trading partners. Elsewhere, U.S. Treasury bond yields were mixed, with short-term rates rising and long-term durations falling. This combination is usually negative for the earnings of financial companies, which borrow short and lend long. The yield curve is also somewhat inverted, with some shorter-term Treasury notes seeing higher yields than longer-duration bonds, which can be a predictor of a recession down the road. The CBOE Volatility Index, a measure of the magnitude of price movements in the S&P 500 that is also known as the “fear gauge,” jumped as demand for option protection increased.
Looking ahead, several economic reports will come out in the next few days. These include initial jobless claims and the first estimate for first-quarter GDP on Thursday, as well as reports on personal income and spending, the Personal Consumption Expenditure Price Index, the Chicago PMI, and the University of Michigan’s final reading on April consumer sentiment on Friday. These should give ample insight into how well the U.S. economy and the consumer are doing; of particular note, the Federal Reserve will likely utilize the PCE index reading on inflation in making its monetary policy decision at next week’s Federal Open Market Committee meeting. Meanwhile, the earnings season is in full swing, with several hundred companies slated to report quarterly results over the coming days. These will include a wide range of industries and should provide additional insight into how Corporate America views the near-term performance of the broader economy. Of note, Dow-30 component Apple (AAPL) will report results after the close of trading tomorrow, and given its high weighting in the S&P 500 and the Dow 30, this could have an outsized effect on the indices, especially if results were to disappoint Wall Street.
– John E. Seibert III
At the time of this article’ writing, the author held positions in one or more of the companies mentioned.
