The Dow Jones Industrial Average fared better, losing only 0.4% instead of the expected 0.6%. This was mostly because American Express, a constituent, reported good results and stated that cardholders were spending more.
The S&P 500 nonetheless had its best week in a month because of a series of mainly better-than-expected data on corporate profits, sandwiched between last week’s depressing inflation report and the Federal Reserve’s decision on interest rates next week. Bond market yields that had been rising due to expectations of Fed rate hikes were falling, which relieved some of the pressure on stocks.
The Dow Jones Industrial Average fared better, losing only 0.4% instead of the expected 0.6%. This was mostly because American Express, a constituent, reported good results and stated that cardholders were spending more.
The S&P 500 nonetheless had its best week in a month because of a series of mainly better-than-expected data on corporate profits, sandwiched between last week’s depressing inflation report and the Federal Reserve’s decision on interest rates next week. Bond market yields that had been rising due to expectations of Fed rate hikes were falling, which relieved some of the pressure on stocks.
On Friday, due to concerns about the economy, the two-year Treasury yield dropped once more, to 2.98% from 3.09% late Thursday and from 3.14% a week earlier. According to a report released on Friday morning, the service sector is particularly weak as U.S. company activity may be contracting for the first time in almost two years.
“Manufacturing has stalled and the service sector’s recovery from the pandemic has gone into reverse,” Chris Williamson, a chief business economist at S&P Global Market Intelligence, said in a statement that accompanied the survey data. “The tailwind of pent-up demand has been overcome by the rising cost of living, higher interest rates, and growing gloom about the economic outlook.”
Similar figures from earlier in the day revealed weakness in Europe as well, highlighting how precarious the global economy is at a time when central banks are raising interest rates to fight inflation. Rate increases exacerbate the current economic climate, and very brisk increases run the risk of sparking a recession.
The most recent figures on Friday indicate that the economy is slowing more than anticipated in several areas. Even though this increases the risk of a recession, traders are now downgrading their expectations for the Federal Reserve’s aggressivity next week. Traders currently believe that a 0.75 percentage point increase in rates is more likely than a full percentage point increase.
By late Thursday, the 10-year Treasury yield dropped from 2.91% to 2.76%.
The firm that created the Snapchat app had a 39.1% decline in its stock price when it revealed a greater loss and lower sales for the spring than expected by Wall Street.
The decline in Snap’s stock price might put pressure on other internet advertising-dependent businesses, which also happen to be among the most powerful stocks on Wall Street. Next week, the parent firms of Google and Facebook are both expected to release their financial results. On Friday, the two declined 7.6% and 5.6%, respectively, making up two of the largest weights in the S&P 500.
To end the day at 3,961.63, the S&P 500 dropped 37.32 points. The Nasdaq plummeted 225.50 points to 11,834.11 while the Dow dropped 137.61 points to 31,899.29.
Data storage company Seagate Technology’s 8.1% loss added to the industry’s suffering. It said that the anti-COVID measures in Asia and the weakening of the global economy last quarter had an impact on its performance, which fell short of expectations.
Verizon’s stock slumped 6.7% as its profit missed forecasts even if its revenue barely made it. It also decreased its earnings projection for this year.
American Express, which increased 1.9% after exceeding analysts’ expectations with its spring profit, was the winner. Customers, for the first time, spent more on travel and entertainment in April than they did before the pandemic, according to the report.
The positive results supported recent statements from prominent bank CEOs who claimed that despite concerns about inflation and the state of the economy, their clients appear to be in good financial health.
The S&P 500 nevertheless increased 2.5% for the week despite Wall Street’s losses on Friday.
Along with the week-long decline in Treasury yields, the price of commodities like crude oil and other raw materials also decreased, which helped to lower inflation. According to Nate Thooft, senior portfolio manager at Manulife Investment Management, they support several existing indicators that inflation may be approaching a peak. These indicators include a lowering of inflation predictions for the coming years.
The most crucial factor, according to him, is inflation. “It’s not profitability, the Fed, or even interest rates themselves,” the speaker said. It is inflation’s uncertainty.
“To me, all the other problems also become less troublesome as soon as you get real evidence that inflation is stabilizing and improving,” he said. The conflict in Ukraine is distinct and far away, but all the other conflicts are interconnected, with inflation serving as their epicenter.
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