Closing Stock Market SummaryThe rebound effort that began late in the day last Friday hit a wall today as market participants grappled with concerns about economic and earnings growth prospects. Many stocks got battered and bruised hitting that wall while others fared reasonably well.
The biggest pains came early when the Nasdaq Composite was down as much as 3.8%. The S&P 500 and Dow Jones Industrial Average were down 2.5% and 1.6% at their worst levels of the day. There was some healing, however, that occurred as the day progressed. The Dow Jones Industrial Average rallied into positive territory and closed near its high for the session. Meanwhile, the Nasdaq and S&P 500 ended the session with lesser declines of 2.3% and 0.8%, respectively.
Unlike the early selling, there wasn't a specific news catalyst for the turnaround effort. Ironically, the early losses themselves likely served as the spark for the turnaround bid as market participants came back to the idea that the stock market is oversold and due for a more meaningful recovery bid.
That notion, though, got put to a serious test this morning following a spate of developments that played into existing concerns about a slowdown in growth here and abroad that could lead to an eventual cut in earnings growth estimates:
- Snap (SNAP 12.79, -9.68, -43.1%) said after Monday's close that it expects its Q2 revenue and adjusted EBITDA to be below its prior guidance because the macroeconomic environment has deteriorated further and faster than anticipated.
- Best Buy (BBY 73.65, +1.07, +1.5%) acknowledged that it saw a worsening in macro conditions as it lowered its FY23 comparable sales guidance to (3.0%)-(6.0%) from (1.0%)-(4.0%).
- Small-cap specialty apparel retailer Abercrombie & Fitch (ANF 19.03, -7.70, -28.8%) reported disappointing fiscal Q1 results and issued disappointing guidance, citing higher costs and lower sales due to an assumed inflationary impact on the consumer.
- Preliminary May manufacturing and services PMI readings out of Japan, the eurozone, and the U.S. showed a deceleration in activity versus April.
- The April New Home Sales Report was much weaker than expected and included a downward revision for March.
- UBS and JPMorgan cut their 2022 GDP growth estimates for China; and reports suggested Beijing has stepped up its quarantine efforts to stop the spread of COVID.
The confluence of these developments undercut most sectors, particularly the communication services (-3.7%), consumer discretionary (-2.6%), and information technology (-1.6%) sectors. To be fair, those sectors finished comfortably off their worst levels of the day, as did most sectors.
Nonetheless, the slowdown concerns were evident in the outperformance of the counter-cyclical utilities (+2.0%), consumer staples (+1.6%), and health care (+0.3%) sectors. Real estate (+1.2%) also outperformed, bolstered by the drop in market rates, which was an offshoot of concerns about the economic environment and the ongoing struggles for the stock market.
The 10-yr note yield settled the day down 10 basis points at 2.76% and the 2-yr note yield settled the day down 11 basis points at 2.50%.
The U.S. Dollar Index slipped 0.3% to 101.74, the CBOE Volatility Index jumped 4.2% to 29.67, and the fed funds futures market priced in a noticeably lower probability of 50 basis point rate hikes at the September and November FOMC meetings.
Reviewing today's economic data:
- New home sales decreased 16.6% month-over-month in April to a seasonally adjusted annual rate of 591,000 units (consensus 750,000) from a downwardly revised 709,000 (from 763,000) in March. On a year-over-year basis, new home sales were down 26.9%.
- The key takeaway from the report is that new home sales are counted when a contract is signed. The sharp drop from March, and the large miss versus the consensus estimate, underscores the affordability pressures that quickly emerged with the spike in mortgage rates.
- The preliminary IHS Markit Manufacturing PMI for May decreased to 57.5 from 59.2 in the final reading for April. The preliminary IHS Markit Services PMI for May decreased to 53.5 from 55.6 in the final reading for April.
Looking ahead, market participants will receive the weekly MBA Mortgage Applications Index, April Durable Goods Orders Report, EIA Crude Oil Inventories, and the FOMC Minutes for the May meeting on Wednesday.
- Dow Jones Industrial Average -12.1% YTD
- S&P 500 -17.3% YTD
- S&P 400 -16.2% YTD
- Russell 2000 -21.4% YTD
- Nasdaq Composite -28.0% YTD
