Barron’s Weekend Summary:For many investors, the selloff feels unfamiliar—there hasn’t been a 10% correction in the S&P 500 since March 2020. But 2022 could actually be closer to normal
Cover Story:
-For many investors, the selloff feels unfamiliar—there hasn’t been a 10% correction in the S&P 500 since March 2020, and the index had just one 5% pullback in all of 2021. But 2022 could actually be closer to normal, with the recent low-volatility conditions more the exception. Since the S&P 500 was created in 1957, the index has averaged about one 10% decline and more than three 5% declines every year, according to Dow Jones Market Data.
Tech Trader:
Tech stocks finally showed a little fight last week, aided by an impressive batch of earnings reports. But the sector remains battered. The Nasdaq Composite is down 16% over the past two months—and beneath the surface, the damage is considerably worse. Among Nasdaq stocks with market caps over $1 billion, one-quarter are down 30% or more since mid-November. More than 60 Nasdaq stocks are down 50%-plus, including familiar names like Overstock, Affirm, Robinhood, DocuSign, and Etsy.
The Trader:
-The Dow Jones Industrial Average rose 1.3% for the week, and the Nasdaq Composite was flat. The Federal Reserve got much of the blame, but earnings didn’t help. This past Tuesday, General Electric (ticker: GE) reported better-than-expected fourth-quarter numbers .
-Tesla stock got hammered this past week after the company reported better-than-expected fourth-quarter earnings Wednesday evening. The reaction to record profits and an earnings beat left investors as well as analysts dazed and confused. More production means more sales, but there could also be some concern that Tesla can’t just sell Model 3 and Model Y vehicles forever with more EV competition coming.
Features:
-A “bomb cyclone” walloped the northeastern U.S. on Saturday, disrupting travel and forcing hundreds of flight cancellations to and from airports in the storm’s path. More than 4,600 flights scheduled for Saturday were canceled by the late morning, with a similar number of delays.
-If you’re like almost everyone else, your first guess is the summer of 1929, just prior to that year’s stock market crash. Close runners up include early 2000, just prior to the bursting of the Internet bubble, 1987 prior to that year’s stock market crash, or October 2007 before the Great Financial Crisis.
-Wesco distributes electrical and communications products. It has 800 locations, 18,000 employees, 30,000 suppliers, 125,000 customers, and 1.5 million products. The Pittsburgh-based company is estimated to have generated about $18 billion in sales in 2021 and is expected to have about $18.9 billion in 2022. It has a roughly 15% share of the U.S. electrical-distribution market. The relatively fragmented nature of such markets gives larger, well-capitalized companies, such as Wesco, a chance to grow by gobbling up smaller, regional players—or by taking market share from them.
European Trader:
For investors navigating an airline sector looking to recover from the pandemic, the flight path of International Consolidated Airlines Group has been particularly tumultuous in recent months, but it suggests the stock has room to grow.
Shares in the British Airways owner surged 25% in the space of 10 days in September after the White House confirmed it would lift travel restrictions on the United Kingdom and continental Europe, signaling the return of trans-Atlantic travel from November. But the recovery failed to take hold as the Omicron variant entered the fray. IAG remains 21% below its high of early October.
Emerging Markets:
The Emerging Markets Internet and Ecommerce exchange-traded fund is down more than half from a peak last February. There should be some bargains in that wreckage. Two non-Chinese internet superstocks, MercadoLibre (MELI) in Latin America and Sea (SE) in Southeast Asia, stayed aloft longer, then crashed more abruptly. MercadoLibre , which is down by half from a September peak, looks like the better rebound prospect.
Baidu, the Chinese search engine looking for a second act in artificial intelligence and autonomous driving.
Commodities:
BCA Research expects Brent oil to average $80 this year and $81 in 2023, but “demand destruction,” either from high prices or widespread Omicron-induced lockdowns, is the biggest risk to that forecast, Ryan says. OPEC+, which refers to the Organization of the Petroleum Exporting Countries and its allies, would need to increase production, and U.S. shale-oil output would have to climb to keep prices from finding a new “equilibrium” above $90.
Streetwise:
Jack Hough makes “some herd-defying recommendations on assets that have suffered much bigger spills.” He spoke with one analyst who downgraded Netflix to the equivalent of Sell, even though its shares have already been Peloton-ed, and another who decided that it’s time to buy, well, Peloton Interactive (—just the thought of which gives me a saddle ache.