Barron’s Weekend Summary: The S&P 500 dropped 3% and has now fallen 18.7% from its Jan. 3 all-time high. A slide of 20%, which it touched Friday before bouncing back, signifies a bear market.
Cover Story:
-The S&P 500 dropped 3% and has now fallen 18.7% from its Jan. 3 all-time high. A slide of 20%, which it touched Friday before bouncing back, signifies a bear market. The Dow Jones Industrial AverageDJIA +0.03% declined 2.9%, its eighth consecutive week of losses, matching its longest losing streak since 1932. The NASDAQ CompositeCOMP –0.30%, already in a bear market, slid another 3.8%, and is down 28.2% from its early January peak. With losses like that, we’d expect to find an end-of-the-world headline that drove the selloff, but good luck finding any single trigger for the week’s carnage. Instead, it was an accumulation of news that seemed to weigh on the markets.
Interview:
-Dan Ivascyn moved from the small town of Oxford, Mass., to the C-suite of Pimco, one of the world’s largest and most successful bond investors. His journey began with a love of talk radio. As a youngster, Ivascyn would tune in to hear nationally syndicated host Bruce Williams deliver advice on money and life: “I always had some general interest in investing,” says Ivascyn, Pimco’s group chief investment officer. “[Williams] used to do a financial-planning radio show that was quite popular when I was growing up, and I would listen to that as a young kid.”
Tech Trader:
-The sharp selloff in technology shares has already had a severe impact on investors’ portfolios, and now it’s also causing considerable ripples in the venture capital market. Start-up valuations are getting slashed and VC firms are slowing their commitments to new deals. Barring any quick reversal in the market’s mood, conditions on Sand Hill Road are likely to get even tougher from here.
The Trader:
In an otherwise brutal week for retail, TJ Maxx parent TJX reported an earnings beat, despite light sales. That was a welcome reversal from other big players, whose higher revenue failed to flow through to the bottom line due to margin-crunching supply-chain and freight costs. Ross Stores stock lost more than 20% on Friday—its worst day since 1993—as earnings, revenue, same-store sales, and guidance all came in well below expectations.
“TJX was the exception in that they’re protecting margins right now, even at the expense of sales,” says BMO Capital Markets analyst Simeon Siegel.
By contrast, Walmart and Target reported higher sales than expected, but lower profit and margins. The pair noted that consumers, especially at the lower end of the income scale, are pulling back from discretionary categories as the cost of essentials rises.
-Spirit Airlines is almost certainly going to get bought. That makes its stock a good bet in a roiling market.
To recap: In early February, Spirit agreed to be bought by Frontier Group Holdings in cash and stock, a bid now valued at $19.73/share. In April, JetBlue Airways made an unsolicited cash offer of $33/share for Spirit, attempting to steal it away from Frontier. Despite the better price, Spirit announced this past week that it would stick with Frontier, citing its belief that the JetBlue deal wouldn’t pass regulatory muster.
Features:
-European Central Bank President Christine Lagarde reiterated her concerns over cryptocurrencies and desire for regulation. “My very humble assessment is that it is worth nothing, it is based on nothing, there is no underlying asset to act as an anchor of safety,” Lagarde said in an interview on Dutch television, according to media reports. The ECB president said she is particularly worried about people who don’t understand the risks associated with the volatile digital currencies and “will lose it all.” That, she said, “is why I believe that that should be regulated.”
-Boeing investors have needed good news and this week they got some when the company’s Starliner spaceship successfully docked with the International Space Station late Friday. “Today’s successful docking of the Starliner is another important step in this rehearsal for sending astronauts into orbit safely and reliably,” said Boeing Defense, Space & Security President and CEO Ted Colbert on Friday.
European Trader:
-Eli Lilly and Incyte said Friday the European Medicines Agency’s Committee for Medicinal Products for Human Use issued a positive opinion for Olumiant to treat adults suffering from severe alopecia areata. Lilly said in a press release that the opinion marks the first step toward European regulatory approval of the oral JAK inhibitor, which is now referred to the European Commission for final action.
Eli Lilly stock rose 2.9% on Friday to $294.59. Incyte fell 1.8%. “This is a significant step for Olumiant on the path to becoming the first and only centrally authorized medicine in Europe for adults with severe alopecia areata,” said Eli Lily senior vice president and chief customer officer, Patrik Jonsson, in the release. “We eagerly anticipate additional regulatory decisions around the world this year.”
Emerging Markets:
-The EU could crush Russia’s global oil sales with: insurance. Underwriters in Germany and Scandinavia might be as effective as tanks and missiles in the struggle for Ukraine. As usual with the EU, however, deploying them is not simple. Three months into Russia’s invasion of Ukraine, Russian oil sales are substantially dodging the Western banking sanctions intended to constrict them. Moscow exported record crude volumes in April, says Jim Mitchell, head of Americas oil analysis at Refinitiv. “Divert is a better term than constrict for what’s happening,” he says. The EU set a de facto deadline for itself to do better: a continental summit slated for May 30-31. Attention has focused on the bloc itself stopping oil purchases from Russia. Putin could divert much of those flows to willing customers in India or China.
-Western unity over Russia’s invasion of Ukraine has been swift, solid, and backed by arms and funds. But there is rising unease in low- and middle-income countries about the geopolitical stakes in which they have been swept up. On March 2, 141 countries voted at the United Nations to condemn Russian aggression in Ukraine. On April 7, only 93 countries voted to remove Russia from the UN Human Rights Council as a result of its actions. Countries representing 59% of the world’s population, including nine out of 10 of the world’s most populous countries, voted against or abstained from that April vote. Decisive action is needed to shore up a cross-regional and global unity before it is too late.
Commodities:
-The scorching-hot wheat market looks set for a cool-down. A combination of drought, war, and a wheat export ban in India has sent prices for the grain sky high. But they might now be reaching the end of what has been an epic rally, experts say. “The market is so overbought right now,” says Jim Roemer, agricultural expert and author of the Weather Wealth newsletter. “The market squeeze should begin to end in June or July.”
-US gasoline prices are at record highs, averaging more than $4.50/gallon at the pump, and surpassing $4 in all 50 states for the first time. But, says Natasha Kaneva, J.P. Morgan’s head of global commodities research, prices could climb over $6 this summer; because, sanctions have cut Russian oil and refined-fuel exports. US refiners, motivated by rising European prices, are shipping more diesel and gasoline there; they’re also selling some 100,000 barrels a day more than usual to Mexico and other nations. In the past five years, the US has averaged 65M barrels of gasoline in storage in mid-May. This year, fewer than 55 million are available.
Streetwise:
-This week, Jack Hough wants to talk to a Target manager: “Is there a manager I can speak with about Target TGT +1.26% stock? I’m not one to complain, but last Wednesday’s performance didn’t live up to expectations. Target is supposed to do two things: take market share and beat the S&P 500. It outperformed by four points last year, 21 points in 2020, and 65 points in 2019. It was down heading into last week, sure, but not by as much as the market. Then blammo, a 25% drop in a day, the biggest since 1987.”