The S&P 500 fell 5.7% last week. The Federal Reserve raised benchmark interest rates by 0.75%, intensifying worries of a recession. The Fed will be in the spotlight during this trading week, shortened by the Juneteenth holiday. Fed Chair Powell testifies before Congress on Wednesday and Thursday. The University of Michigan’s June consumer sentiment reading and earnings reports from the consumer discretionary sector and FedEx Corp. will likely influence stocks this week.

The Federal Reserve raised its target interest rate by 0.75% to fight inflation. This increase marked the steepest interest rate hike since 1994.

Fed officials cut their outlook for 2022 gross domestic product growth to 1.7%, down from 2.8% in March.

At the press conference, Fed Chair Powell said the central bank would likely raise interest rates by either 0.5% or 0.75% when the Federal Open Market Committee meets in July.

Worries of a recession rose after the central banks of England and Switzerland joined the Federal Reserve in raising their benchmark interest rates.

Separately, data suggests the U. S. economy is rapidly cooling while inflation remains high. The producer price index showed wholesale prices rose 10.8%, close to a record, during the 12 months ending in May.

Housing starts swooned 14% in May, well above economists’ forecast for a 2.6% decline. Retail sales surprisingly fell 0.3% in May from April. Economists expected retail sales to grow by 0.2%.

Investors worried the Federal Reserve’s aggressive approach to curbing inflation would push the economy into a recession and crimp corporate profits. The Dow Jones Industrial Average fell below 30,000 for the first time since January 2021.

The yield on the 10-year Treasury note rose 0.07% for the week to close at 3.24%. Oil prices fell more than 8%.

For the week ending June 17, the S&P 500 (SPY) fell 5.7%. All of the 11 sectors declined.

Leaders and laggards for the week ending June 17, 2022.

Market breadth was overwhelmingly negative. Only 14 of the S&P 500 index’s constituents ended the week in the black.

Consumer staples (XLP), health care (XLV), and financials (XLF) held up better than the S&P 500, losing 4.9% or less.

Energy (XLE), utilities (XLU), and materials (XLB) lost more than the S&P 500.

The S&P 500’s top 10 winners included the following:

1. Industrials Sector

• FedEx Corporation (FDX) +11% – The week’s top performer in the S&P 500.
• The Boeing Company (BA) +8%

2. Real Estate Sector

• Duke Realty (DRE) +3%

3. Health Care Sector

• Vertex Pharmaceuticals (VRTX) +3%
• Biogen Inc. (BIIB) +2%
• Regeneron Pharmaceuticals (REGN) +2%
• Incyte Corporation (INCY) +1%

4. Consumer Staples Sector

• Monster Beverage (MNST) +1%

5. Information Technology Sector

• Oracle Corporation (ORCL) +1%

6. Financial Sector

• Truist Financial (TFC) +1%

Top ETFs for the week

The following ETF themes worked well: China, biotech, and income. In the income theme interest rate volatility, floating rate bonds, and T-bills performed well. The top ETFs for the week include:

• KraneShares Bosera MSCI China A 50 Connect Index ETF (KBA) 3.4%
• SPDR S&P Biotech ETF (XBI) 0.9%
• Quadratic Interest Rate Volatility and Inflation Hedge ETF New (IVOL) 0.8%
• iShares Treasury Floating Rate Bond ETF (TFLO) 0.1%
• SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) 0.0%

Top Fidelity Fund for the week

• Fidelity Select Biotechnology Portfolio (FBIOX) +1.3%

Fed Chair Powell Heads to Capitol Hill the Week of June 20

* The Federal Reserve and Chair Powell will again be in the news this week. Powell testifies to the Senate Banking Committee on Wednesday and the House Committee on Financial Services on Thursday. He is likely to hold on to his plan for taming inflation.

* The University of Michigan updates the consumer sentiment reading for June. The significance of this economic data point has increased since Powell cited the weakness in this reading among the reasons for raising interest rates last week. Investors will see a green light for the Fed to raise rates if the survey’s update matches or turns worse than the preliminary reading.

* Investors will get insights into the U. S. consumer spending when homebuilder Lennar, used car retailer CarMax, and restaurant chain Darden report earnings this week. Likewise, earning reports from freight titan FedEx and IT services firm Accenture should provide investors with insights into the state of the global economy.
 

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The S&P 500 fell 5.1% last week after the consumer price index rose more than expected in May. Investors feared the Federal Reserve would raise interest rates more than anticipated to quell inflation. The Fed’s two-day meeting is the main event of this week. Investors will also get a pulse of state of the economy from different perspectives including inflation, consumer spending, housing, and manufacturing.

U. S. stocks fell across the board after the consumer price index (CPI) rose in May, well above the 0.7% monthly rise forecast by economists surveyed by The Wall Street Journal. The CPI rose 8.6% year-over-year, the highest annual rate since 1981. The year-over-year increase exceeded economists’ 8.3% forecast.

Consumer sentiment dropped sharply, impacted by inflation concerns. The University of Michigan’s gauge of consumer sentiment fell to a record low of 50.2, down from its May reading of 58.4.

With hopes of peaking inflation dashed, investors feared that the Federal Reserve would increase interest rates quickly this summer, potentially causing a recession.

Following the inflation report, investors raised their expectations for interest rate increases. Yields on the 2-year and 10-year Treasury bonds rose 0.41% and 0.23%, respectively, last week. At its Friday closing yield of 3.17%, the 10-year Treasury yielded just 0.1% more than its 2-year counterpart.

For the week ending June 10, the S&P 500 (SPY) fell 5.1%. All of the 11 sectors declined.

Leading and lagging sectors for the week ending June 10, 2022.

Market breadth was overwhelmingly negative. The number of advancing stocks in the S&P 500 lagged the number of decliners by a 1-to-17 ratio.

Energy (XLE), consumer staples (XLP), and health care (XLV) held up better than the S&P 500, losing 3.3% or less.

Financials (XLF), information technology (XLK), and real estate (XLRE) lagged the S&P 500.

The S&P 500’s top 10 winners included the following:

1. Consumer Staples Sector

• The J. M. Smucker Company (SJM) +5% – The week’s top performer in the S&P 500.
• Brown-Forman Corporation (BF-B) +3%
• The Kraft Heinz Company (KHC) +3%
• Dollar General Corporation (DG) +3%
• Kellogg Company (K) +3%
• Campbell Soup Company (CPB) +3%
• The Hershey Company (HSY) +2%

2. Energy Sector

• Valero Energy Corporation (VLO) +4%
• Marathon Petroleum Corporation (MPC) +3%

3. Consumer Discretionary Sector

• Domino’s Pizza, Inc. (DPZ) +3%
• Dollar General Corporation (DG) +3%

Top ETFs for the week

The following ETFs themes worked well: China, China tech, and gold. The top ETFs for the week include:

• KraneShares CSI China Internet ETF (KWEB) +7.8%
• The Emerging Markets Internet & Ecommerce ETF (EMQQ) +3.3%
• iShares China Large-Cap ETF (FXI) +2.7%
• GraniteShares Gold Trust (BAR) +1.2%
• SPDR Gold MiniShares (GLDM) +1.2%

Top Fidelity Fund for the week

• Fidelity Emerging Asia Fund (FSEAX) +2.1%

Fed in Focus After Red Hot CPI the Week of June 13

* The Federal Reserve’s June 14-15 interest rate policy meeting is the main event of this week. Most economists expect the Fed to raise its short-term benchmark interest rate by 0.5% on Wednesday. Some economists have raised their forecast to 0.75% in light of the CPI data released last Friday. Federal Reserve Chair Powell holds a press conference after the two-day meeting. Investors await Powell’s comments on the central bank’s plan for raising interest rates in July and September.

* Economic reports on the calendar this week include updates on inflation (producer price index), consumer spending (May retail sales), the housing market (May housing starts), and manufacturing activity (May industrial production).

* Just three members of the S&P 500 index report their quarterly earnings this week. They are software titans Adobe and Oracle, and supermarket chain Kroger.
 

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Last week, the S&P 500 surged 6.6%, snapping a 7-week losing streak. The week is packed with economic data releases, despite being shortened by the Memorial Day holiday. The May jobs report is the highlight of the week that includes readings on consumer confidence, manufacturing activity, and service activity.

The S&P 500 surged 6.6% last week, ending the 7-week rout in U. S. stocks.

Investors reacted positively to the minutes from the Federal Reserve’s interest rate policy meeting in early May. The minutes reaffirmed the central bank’s commitment to rein in inflation while remaining responsive to economic data. Investors surmised that the Fed could pause interest rate increases by the third quarter if it front-loads them, as discussed in the meeting.

The April reading on the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) index, gave stocks another lift. The PCE index showed price pressures easing in April. The inflation rate declined for the first time in a year and a half. The annual inflation rate slowed to 6.3% in April from a 40-year high of 6.6% in March, raising hopes of a peak in inflation.

Due to peaking inflation, investors lowered their expectations of the Fed raising interest rates for the remainder of 2022. Bond yields dipped a tad last week as the 10-year yield ended about 0.04% lower at 2.74%.

Separately, the Commerce Department reported consumer spending increased 0.9% in April, compared to economists’ 0.7% forecast. Gains in wages supported the growth in consumer spending. This resiliency in consumer spending boosted investors’ confidence in the economy’s ability to avoid a recession.

For the week ending May 27, the S&P 500 (SPY) rose 6.6%. All of the 11 sectors advanced.
 

Leaders and laggards for the week ending May 27, 2022.

Market breadth was overwhelmingly positive. The number of advancing stocks in the S&P 500 swamped the number of decliners by a 49-to-1 ratio.

Consumer discretionary (XLY), energy (XLE), and financials (XLF) led the S&P 500, gaining 8.1% or more.

Health care (XLV), communication services (XLC), and utilities (XLU) lagged the S&P 500.

The S&P 500’s top 10 winners included the following:

1. Consumer Discretionary Sector

• Dollar Tree (DLTR) +29% – The week’s top performer in the S&P 500.
• Ulta Beauty (ULTA) +24%
• Dollar General (DG) +22%
• Ross Stores (ROST) +21%
• Best Buy Co. (BBY) +16%
• AutoZone (AZO) +16%

2. Information Technology Sector

• DXC Technology (DXC) +19%

3. Utilities Sector

• Constellation Energy (CEG) +18%

4. Energy Sector

• Schlumberger Ltd. (SLB) +17%
• Diamondback Energy (FANG) +17%

Top ETFs for the week

The following ETFs themes worked well: oil & gas, retailing, metals & mining, and clean energy. The top ETFs for the week include:

• First Trust Natural Gas ETF (FCG) +15.8%
• SPDR S&P Oil & Gas Exploration & Production ETF (XOP) +14.8%
• SPDR S&P Retail ETF (XRT) +10.1%
• SPDR S&P Metals and Mining ETF (XME) +9.9%
• First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) +9.8%

Top Fidelity Fund for the week

• Fidelity Select Retailing (FSRPX) +10.4%

Will Stocks Extend or Snap Their One Week Rally?

* The Labor Department’s May jobs report, due on Friday, is the main event of the Memorial Day holiday-shortened week. Economists surveyed by The Wall Street Journal expect job creation to fall to 325,000 in May from 428,000 in April. They expect the unemployment rate to dip to 3.5% in May from 3.6% in April. Sub-par job creation can be a positive for stocks, while a larger-than-expected drop in the unemployment rate can be a negative.

* In other economic data, the Institute of Supply Management’s factory and services activity measures come out on Wednesday and Friday, respectively. The May Chicago purchasing managers’ index and the May consumer confidence index are due on Tuesday.

* Several information technology companies in the S&P 500 report this week. They are Hewlett Packard Enterprise, HP Inc., NetApp, and Salesforce. Food products company Hormel, apparel maker PVH Corp., and medical device company Cooper are others reporting.
 

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Fears of high inflation impacting corporate profits heightened last week. Walmart and Target reported quarterly earnings short of analysts’ forecasts. The retailers warned of continued cost pressures. Fed Chairman Powell said the central bank would not hesitate to lift rates beyond neutral to curb high inflation. Investors worried the Fed’s efforts to control inflation would derail the economy.

Subpar quarterly profits and profit forecasts from leading retailers raised concern over the ability of U. S. companies to deal with inflation and the willingness of consumers to pay higher prices.

Walmart and Target rattled market sentiment. They warned of rising fuel costs, wages, and freight costs crimping margins in the future. The retailers also saw lower-than-expected sales for discretionary merchandise like TVs.

The Federal Reserve signaled a tough stance on monetary policy. Chairman Powell said the central bank would continue to raise interest rates to temper the recent surge in inflation. He added the Fed would do so until inflation declines.

While retailer earnings stoked concerns of inflation jeopardizing corporate earnings growth and profit margins, the Fed’s stand on inflation fueled worries that the Fed’s actions could tip the economy into a recession.

For the week ending May 20, the S&P 500 (SPY) fell 3.0%. Three of the 11 sectors advanced.

Leading and lagging sectors for the week ending May 20, 2022, as retailers and Fed drive stocks lower.

Market breadth was negative. The number of advancing stocks in the S&P 500 lagged the number of decliners by a 3-to-8 ratio.

Energy (XLE), health care (XLV), and utilities (XLU) bucked the S&P 500, gaining 0.4% or more.

Consumer staples (XLP), consumer discretionary (XLY), and industrials (XLI) lagged the S&P 500.

The S&P 500’s top 10 winners included the following:

1. Communication Services Sector

• Paramount Global (PARA) +15% – The week’s top performer in the S&P 500.

2. Information Technology Sector

• Synopsys (SNPS) +11%
• SolarEdge Technologies (SEDG) +11%
• Enphase Energy (ENPH) +7%

3. Utilities Sector

• NRG Energy (NRG) +8%

4. Healthcare Sector

• Organon & Co. (OGN) +8%
• Viatris (VTRS) +7%

5. Materials Sector

• Corteva (CTVA) +7%
• Celanese Corp. (CE) +6%

6. Financial Sector

• MarketAxess Holdings (MKTX) +6%

Top ETFs for the week

The following ETFs themes worked well: solar energy, rare earth metals, copper mining, clean energy, and silver mining. The top ETFs for the week include:

• Invesco Solar ETF (TAN) +8.9%
• VanEck Rare Earth/Strategic Metals ETF (REMX) +8.4%
• Global X Copper Miners ETF (COPX) +7.7%
• iShares Global Clean Energy ETF (ICLN) +7.5%
• Global X Silver Miners ETF (SIL) +6.0%

Top Fidelity Fund for the week

• Fidelity Latin America (FLATX) +4.5%

Will Retailer Earnings, Inflation Data, and Fed Minutes Rescue Stocks?

Earnings from discount and specialty retailers, data on personal consumption expenditures, and minutes of the Fed’s May meeting on interest rate policy hold the keys to how stocks fare this week.

* Earnings reports from several mid-sized and smaller retailers are in store after reports from Walmart and Target crushed their stocks and took the broad market lower last week. Reporting retailers include discounters Costco, Dollar General, and Dollar Tree. Department store Macy’s and specialty retailers Ulta Beauty and Dick’s Sporting Goods also report.

* The Bureau of Economic Analysis reports the personal consumption expenditures (PCE) data for April this Friday. The report includes data on the Federal Reserve’s preferred inflation measure, the core PCE, which excludes food and energy prices. Economists surveyed by Dow Jones expect the core PCE to rise by 0.3% and 4.9%, respectively, on a month-over-month and year-over-year basis. The PCE report includes data on consumer spending and consumer income, providing investors with insights into the state of the consumer.

* The minutes from the Federal Reserve’s May 3-4 meeting on interest rate policy are due on Wednesday.
 

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The S&P 500 lost 2.3% for the week, despite rising 2.4% on Friday. The benchmark’s sixth straight weekly loss was its longest losing streak in nearly a decade. Fears of the Federal Reserve’s tighter interest rate policy tilting the economy into recession offset relief provided by signs of peaking inflation.

The Labor Department’s reports on the consumer price index (CPI), the producer price index (PPI), and the price index for imports collectively suggested that inflation may have peaked in March. Here are the year-over-year changes in the three metrics:

* Total CPI: up 8.3% in April, down from 8.5% in March.
* PPI for final demand: up 11.0% in April, down from 11.5% in March.
* Price index for imports: up 12.0% in April, down from 13.0% in March.

Inflation expectations in the bond market came down, slowing the relentless rise in bond yields. The 10-year yield ended the week at 2.93%, after peaking at 3.2% earlier in the week.

Stocks appeared to bounce off “washout lows” on Thursday, as they cut their losses for the week. The S&P 500 rebounded to end the week above 4,000 after falling as low as 3,859 on Thursday. Buyers on Friday hunted for bargains among the hard-hit growth stocks.

The U. S. Senate confirmed Federal Chairman Powell for a second term. Powell repeated the central bank’s determination to battle inflation while expressing belief that the economy can avoid a serious downturn.

Although inflation measures showed signs of peaking in March, investors worried that inflation was still too high. They feared that the Fed would aggressively tighten interest rates to contain inflation.

For the week ending May 13, the S&P 500 (SPY) fell 2.3%. Only one of the 11 sectors advanced.

Leading and lagging sectors for the week ending May 13, 2022, as growth fears trounce peaking inflation.

Market breadth was negative. The number of advancing stocks in the S&P 500 lagged the number of decliners by a 1-to-3 ratio.

Consumer staples (XLP) bucked the S&P 500, gaining 0.3%. Communication services (XLC) and health care (XLV) lost less than the S&P 500.

Real estate (XLRE), consumer discretionary (XLY), and financials (XLF) lagged the S&P 500.

The S&P 500’s top 10 winners included the following:

1. Health Care Sector

• Viatris Inc. (VTRS) +11%

The drugmaker beat analysts’ first-quarter EPS and raised its dividend by 9%. Viatris also provided 2022 revenue and cash flow projections above analysts’ estimates. Up 11% for the week, Viatris shares were the week’s top performer in the S&P 500.

2. Communication Services Sector

• Electronic Arts Inc. (EA) +8%
• Lumen Technologies, Inc. (LUMN) +6%
• News Corp. (NWS) +6%

The video game publisher reported fiscal fourth-quarter EPS above analysts’ forecasts. Electronic Arts reported an 18% increase in net bookings from the launch of popular content in Apex Legends, EA Sports, and The Sims franchises.

3. Materials Sector

• International Flavors & Fragrances (IFF) +8%

Synergies from DuPont’s Nutrition & Biosciences business purchase helped specialty chemicals maker International Flavors & Fragrances top analysts’ first-quarter sales and EPS estimates.

4. Real Estate Sector

• Duke Realty Corporation (DRE) +8%

Industrial REIT Duke Realty rallied after competitor Prologis offered $24 billion to buy the former. Duke Realty rejected the hostile offer, calling it “insufficient.”

Other Top 10 Winners

The S&P 500’s top 10 winners for the week also included:

• Online marketplace Etsy, Inc. (ETSY) +7%
• Air conditioning equipment maker Carrier Global Corp. (CARR) +6%
• Oil services provider Baker Hughes (BKR) +6%
• Cybersecurity solutions provider Fortinet, Inc. (FTNT) +6%

Top ETFs for the week

The following ETFs themes worked well: China Internet, Europe, Sweden, long-term bonds, and China large-cap. The top ETFs for the week include:

• Invesco China Technology ETF (CQQQ) +4.8%
• WisdomTree Europe Hedged Equity Fund (HEDJ) +2.7%
• iShares 20+ Year Treasury Bond ETF (TLT) +2.0%
• iShares MSCI Sweden ETF (EWD) +2.0%
• iShares China Large-Cap ETF (FXI) +1.9%

Top Fidelity Fund for the week

• Fidelity Long-Term Treasury Bond Index Fund (FNBGX) +1.9%

Can Stocks Rebound After 6-Weeks of Losses?

Following a sharp plunge and rebound in stock prices last week, investors will watch for signs that the S&P 500 can hold its low of 3,859 set last Thursday. Investors will get an update on consumer financial well-being from retailer earnings reports and retail sales data.

* Investors will assess if the bounce from Thursday’s bottom has the makings of an endurable one and if the rally has further legs. The rally in stocks could extend if bond yields stay range-bound.

* Fed Chairman Jerome Powell speaks at a Wall Street Journal conference on Tuesday afternoon. Investors will continue to look for clues on the central bank’s interest rate hiking path.

* Investors will get insights into the impact of inflation on consumer spending and attitudes from retailer earnings and retail sales data. Walmart, Home Depot, and Target report their first-quarter earnings this week. Economists surveyed by Briefing.com expect retail sales to increase 1.1% in April, up from 0.5% in March.

* Earnings from a few technology companies are also in store. They include Analog Devices, Applied Materials, Cisco Systems, and Palo Alto Networks.

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The S&P 500 fell 0.2%, marking its fifth straight weekly loss. The outcome for the week did not reflect the volatility in stocks. Investors eagerly bid up stock prices after Fed Chair Powell expressed confidence in taming inflation without triggering a recession. This belief soon gave way to anxiety amidst rising fears of stagflation.

Stocks surged to their best gain in nearly two years on Wednesday. The Fed raised its fed funds target rate by 0.5%. Investors reacted enthusiastically to Federal Reserve Chair Powell’s remarks after the May 2-3 interest rate policy meeting.

Powell said that the Fed was not actively considering interest rate hikes of 0.75% during interest rate policy meetings. Powell asserted that the Fed should be able to lower inflation without grinding economic growth to a halt.

The rally, however, unraveled on Thursday as investors had second thoughts. They surmised that the Fed was falling further behind in its effort to tame surging inflation. Investors feared the Fed would eventually have to aggressively raise interest rates in its fight against inflation and topple the economy into recession.

Economic data raised stagflation fears. The April employment report showed healthy job creation with relatively low wage pressure. The Labor Department reported the U. S. economy added 428,000 new jobs, generally in-line with the 400,000 new jobs forecasted by economists. Average hourly earnings rose 0.3%, a tad below economists’ forecast for a 0.4% increase. The unemployment rate was unchanged at 3.6%.

Investors interpreted the sharp drop in productivity in the first quarter amidst the continued rise in wages as signs of stagflation.

For the week ending May 6, the S&P 500 (SPY) fell 0.2%. Five of the 11 sectors advanced.
 

Leading and lagging sectors for the week ending May 6, 2022, before April consumer price index data.

Market breadth was neutral. The number of advancing and declining stocks in the S&P 500 was nearly equal.

Energy (XLE), utilities (XLU), and financials (XLF) bucked the S&P 500, gaining 0.7% or more.

Real estate (XLRE), consumer discretionary (XLY), and consumer staples (XLP) lagged the S&P 500.

The S&P 500’s top 10 winners included the following:

1. Information Technology Sector

• EPAM Systems (EPAM) +31%
• Monolithic Power Systems (MPWR) +13%

Battered shares of IT services provider EPAM Systems surged after its first-quarter sales and EPS topped analysts’ forecasts. EPAM has significant exposure to Russia and Ukraine. Up 31% for the week, EPAM shares were the week’s top performer in the S&P 500.

2. Materials Sector

• Albemarle Corp. (ALB) +26%

Shares of the lithium producer surged after Albemarle raised its full-year sales and EPS guidance by 24% and 75%, respectively.

3. Energy Sector

• Devon Energy (DVN) +20%
• Occidental Petroleum (OXY) +18%
• Pioneer Natural Resources (PXD) +16%
• Valero Energy (VLO) +16%
• Hess Corp. (HES) +14%
• EOG Resources (EOG) +13%

Energy shares fared well as oil and gas prices rose 6% and 11%, respectively, for the week. Prices of energy commodities rose on supply concerns as the European Union proposed to phase out Russian crude oil in six months and refined products by the end of 2022. Oil & gas producers Devon Energy, Pioneer Natural Resources, and EOG Resources posted upbeat quarterly earnings reports.

4. Utilities Sector

• NRG Energy (NRG) +15%

The electric utility reversed losses from a year ago and reported EPS of $7.17 for the first quarter, well above analysts’ EPS estimate of $0.62.

Top ETFs for the week

The following ETFs themes worked well: energy including carbon credits & MLPs and dividend-yielding stocks. The top ETFs for the week include:

• iShares U.S. Oil & Gas Exploration & Production ETF (IEO) +11.3%
• Energy Select Sector SPDR Fund (XLE) +10.3%
• KraneShares Global Carbon ETF (KRBN) +6.1%
• Alerian MLP ETF (AMLP) +4.9%
• First Trust Morningstar Dividend Leaders Index Fund (FDL) +3.1%

Top Fidelity Fund for the week

• Fidelity Select Energy (FSENX) +9.3%

Will Stocks Recover from their 5-Week Rut

Stocks could see significant moves either up or down next week in response to inflation data, bond yields, and the war in Ukraine.

* The April consumer price index is the next major inflation signpost. Economists surveyed by Dow Jones expect the April CPI reading to show a year-over-year increase of 8.1% on Wednesday, slightly below the 8.6% annual change in March. Signs of peaking inflation can bring some stability to both stocks and bonds.

* The relentless increase in the 10-year Treasury bond yield continued last week. The bond yield rose 0.2% last week. It topped 3.0% for the first time since November 2018, closing at 3.1%. Signs of peaking inflation can, at the very least, slow the rate of increase in bond yields.

* Russia observes the Victory Day holiday on May 9, commemorating its triumph over Nazi Germany in 1945. The Kremlin has often used Victory Day to stir patriotic pride and emphasize Russia’s role as a global power. Military strategists have voiced concern that Russian President Putin may escalate attacks on Ukraine on this occasion.

* Regarding downside risks to stocks, the S&P 500 came within 68 points of breaking 4,000 last week before rallying to end Friday at 4,123. Technical analysts believe Apple and Microsoft hold the keys to supporting the S&P 500. The S&P 500 could drop below 4,000 if shares of Apple and Microsoft fall below $150 and $270, respectively.

* Disney, Duke Energy, Occidental Petroleum, Sysco, and Simon Property Group are among the S&P 500 companies reporting this week.
 

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Stocks fell for a third straight week after Fed Chair Powell said the central bank would consider increasing the fed funds rate by 0.5% when it meets in May. Netflix shares fell 37% after reporting first-quarter earnings. Investors weighed the risks of a recession from interest rate hikes.

The Dow Jones Industrial Average dropped about 1,000 points on Friday, marking its worst one-day decline since 2020.

Stocks fell sharply after Fed Chair Powell spoke at an International Monetary Fund panel. Powell said it is ‘absolutely essential’ to tame inflation. He backed moving more quickly to combat inflation and said a 50-basis-point increase would be ‘on the table’ when the Fed meets in May.

In earnings news, Netflix dented market sentiment after it reported a decline in subscriber count. Netflix shares were down 37% for the week. Disappointing earnings from hospital operator HCA Healthcare and robotic surgery equipment maker Intuitive Surgical weighed heavily on health care stocks.

The yield on the 10-year Treasury Bond rose 0.08% to end the week at 2.91%.

As investors worried about how higher interest rates could impact the economy, defensive sectors fared better than economically sensitive ones.

For the week ending April 22, the S&P 500 (SPY) fell 2.7%. Only two of the 11 sectors advanced.

Leading and lagging sectors for the week ending April 22, 2022, before Mega-caps report 1Q22 earnings.

Market breadth was negative. The number of advancing stocks in the S&P 500 lagged the number of decliners by a 3-to-7 ratio.

Real estate (XLRE) and consumer staples (XLP) bucked the S&P 500, ending above the flat line.

Communication services (XLC), energy (XLE), and materials (XLB) lagged the S&P 500.

The S&P 500’s top 10 winners included the following:

1. Industrials Sector

• United Airlines Holdings (UAL) +14%
• Allegion plc (ALLE) +7%
• American Airlines Group (AAL) +6%
• Snap-on Inc. (SNA) +5%

Airlines shares rallied after the Transportation Security Administration removed the mask mandate for air travel. Reporting first-quarter earnings, United and American noted robust increases in flight bookings and willingness of passengers to pay more to travel. Both airlines predicted profits in the second quarter. United shares rose 14% to be the week’s top performer in the S&P 500.

2. Consumer Staples Sector

• Kimberly-Clark (KMB) +10%

The consumer products company topped analysts’ quarterly EPS estimates and raised its full-year sales forecast.
3. Information Technology Sector

• International Business Machines (IBM) +9%
• Western Digital Corp. (WDC) +7%

IBM shares rose after reporting sales and EPS above analysts’ estimates.
4. Communication Services Sector

• Twitter, Inc. (TWTR) +9%

The social media company moved up after Tesla CEO Elon Musk said he has $46.5 billion in funding available to take over Twitter and may explore a tender offer to acquire shares directly from shareholders. Musk is Twitter’s largest shareholder.
5. Financials Sector

• M&T Bank Corp. (MTB) +8%
• SVB Financial Group (SIVB) +7%

Regional bank shares moved up after reporting better-than-expected first-quarter results.

Top ETFs for the week

The following ETFs themes worked well: carbon credits, airlines, real estate, transportation, and Indonesia. The top ETFs for the week include:

• KraneShares Global Carbon ETF (KRBN) +6.1%
• U.S. Global Jets ETF (JETS) +2.7%
• The Real Estate Select Sector SPDR Fund (XLRE) +1.3%
• SPDR S&P Transportation ETF (XTN) +1.1%
• iShares MSCI Indonesia ETF (EIDO) +1.0%

Top Fidelity Fund for the week

• Fidelity Real Estate Index Fund (FSRNX) +1.0%

1Q22 Mega-cap Earnings and Economic Data Ahead of FOMC

A heavy dose of earnings reports is in store this week. Almost 150 members of the S&P 500 index report earnings. Data on inflation and GDP growth are also due ahead of the Fed’s May 3-4 interest rate policy meeting. The earnings reports and economic data points should collectively answer questions vexing investors.

* Concerns of pandemic beneficiaries falling short of analysts’ earnings expectations are up after Netflix disappointed last week. This week’s earnings reports from some of the largest companies will shed light on two key issues. First, is Netflix’s subscriber shortfall limited to streaming video companies, or is it a part of the broader trend impacting many subscription businesses, including software and cybersecurity? Second, are companies successful in maintaining profit margins in this high inflation environment?

* Nearly 150 S&P 500 members report earnings this week. However, the focus is on mega-cap stocks. The reporting calendar includes the top four S&P 500 members, Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), and Microsoft (MSFT), with Alphabet and Microsoft leading the way on Tuesday.

* Index heavyweights from other sectors reporting this week include Visa (V), ExxonMobil (XOM), Coca-Cola (KO), AbbVie (ABBV), and United Parcel Services (UPS).

* Key economic data are due before the Federal Open Market Committee’s May 3-4 interest rate policy meeting. The Bureau of Economic Analysis reports the March reading of the personal consumption expenditures (PCE) index, the Fed’s preferred inflation measure. Economists surveyed by Dow Jones expect the core PCE, excluding food and energy expenditures, to show month-over-month and year-over-year increases of 0.4% and 5.4%, matching the corresponding tallies in February. The Commerce Department reports its preliminary estimate of first-quarter gross domestic product growth. This report should provide insights into how the economy is faring in this milieu of high inflation, rising bond yields, and the war in Ukraine.
 

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