For Wall Street, a bruising week
The financial world was faced with a tumultuous week, after a few dramatic days of trading on the Wall Street.
“The Nasdaq Composite stock index has undergone its heaviest one-month sell-off since the depths of the global financial crisis, as concerns about rising interest rates and slowing economic growth were exacerbated by softer business updates from tech giants such as Amazon, Apple and Netflix”, the Financial Times reports.
Futures tied to the Dow Jones Industrial Average dropped 418 points, or 1.3%. S&P 500 futures fell 1.5%, while those for the Nasdaq 100 lost 1.7%. Energy stocks fell broadly in the premarket as U.S. oil futures slid more than 2% to $107.18 per barrel.
Marathon Petroleum shares dipped 3% before the bell, and Schlumberger slipped 2.1%. Big Tech names such as Meta Platforms and Alphabet were also down more than 2% each, while Amazon, Apple and Netflix traded more than 1% lower, according to a CNBC report.
Apple, the US’s most valuable company, reported stronger than expected quarterly revenues on Thursday but warned that supply chain shortages and Chinese factory shutdowns could cost it up to $8bn in the second quarter.
Amazon, the online retailer and cloud computing group, blamed slipping online sales and rising costs for its slowest ever quarterly revenue growth. Its shares tumbled 14 per cent on Friday, while Apple’s dropped 3.7 per cent, states the Financial Times.
While on Wednesday, May 4th, the Dow had its best day since 2020, all the gains had been erased by Thursday. The short-lived Wednesday rally came after Jerome Powell, the chair of the United States Federal Reserve, said the central bank was not considering a 75-basis-point rate hike at upcoming meetings.
Stocks and bonds rallied following that comment but reversed course on Thursday, but Powell’s statement was an “unforced error” that also contributed to the volatility of the market, the analysis continues.
However, investors seem to be lacking in confidence that the Federal Reserve can bring inflation back under control without triggering a major economic slowdown, said David Donabedian, chief investment officer of CIBC Private Wealth US, for the Washington Post.
But, what does an interest hike from the Federal Reserve mean for the economy?
The Federal Reserve raised interest rates last Wednesday by half a percentage point and scaled back other pandemic-era economic supports, strengthening its efforts to fight the highest inflation in 40 years in the United States.
This could make borrowing more expensive for corporations and households, even though officials are attempting to raise interest rates at such a pace that it doesn’t completely smother economic growth. If the economy cools too quickly, it could fall into a recession, which is defined as two consecutive quarters of decline.
On the Asian front, in addition to a slowing economic growth, the position of China, the world’s second biggest economy, with regards to the pandemic, also played a role in how global markets have raddled last week. China’s continued embrace of a zero-Covid policy and its draconic lockdowns in mainland China have stoked concerns about the financial performance of the country.
Investors in Asia are jittery after the latest comments from China’s top leadership on its efforts to stop the spread of the coronavirus. President Xi Jinping said all levels of government must “resolutely” adhere to the country’s zero-Covid policy. He made the remarks during a meeting last Thursday with the Communist Party’s Politburo Standing Committee — the nation’s top decision-making body, states a CNN Business analysis.
The S&P 500 benchmark dropped 8.8% in April, including a 3.6% decline on Friday for its worst month since the onset of the coronavirus pandemic in 2020. Of the more than 250 S&P constituents that have reported first-quarter results, about 80% beat earnings forecasts, according to FactSet. Amazon alone dragged the index’s year-over-year earnings growth rate from just above 10 % to 7.1%.
However, while the US market is a peculiar one, given that it is dominated by the tech sector (shares in Apple, Microsoft, Amazon, Tesla, Alphabet, Meta and Netflix made up almost a quarter of the S&P 500), the sectoral composition within Europe is much more different. Here, markets can do well on the back of rising energy prices and rising commodity.
Last Friday, European markets were helped by hopes that Chinese authorities would take action to safeguard the world’s second-largest economy from further widespread coronavirus shutdowns. The Communist party’s decision-making body promised on Friday to “strengthen macro adjustments” and “achieve full-year economic and social development goals”.
“A lot of investors [in Europe] are mainly focused on China, as China really powers the global growth engine and a lot of hopes are hinging on China pulling an ace out of its sleeve” in terms of economic stimulus, said Gregory Perdon, co-chief investment officer at Arbuthnot Latham, for the Financial Times.
Additionally, with the technology sector being down 4.9%, experts in venture capital and finance are seeing industries that are optional for consumers being hit the hardest.
“You’re seeing those areas of the market which are purely discretionary, they are the ones getting hit today because everyone is anticipating that this is going to be a challenging period for consumers over the next several quarters,” said Megan Horneman, chief investment officer at Verdence Capital Advisors, for Reuters.
Even though consumers still appear to be in reasonably healthy financial shape, which helps to lift the pockets of the market and economy, inflation, which is uncomfortably high, remains a central concern for consumers in the United States, as well as abroad.
Photo source: The Washington Post