The stock market rebounded late Thursday to recover most of its losses. Investors continued to be concerned about the impact of inflation and the Fed’s tight monetary policy on the economy.
Dow Jones Industrial Average
It fell 104 points, or 0.3%, while
Standard & Poor’s 500
decreased by 0.1%, and
It rose 0.1%. If the S&P 500 index – currently trading at 3,930 – falls to 3,837, it would indicate a bear market, or a 20% drop from its all-time high, hit in early January.
For starters, the latest circulating inflation data hasn’t helped allay investors’ fears. The producer price index rose 11% year-over-year for April, the Labor Department reported Thursday, above estimates of 10.7% and below March’s 11.2% increase.
“It is possible that we also saw the peak in the rate of change in wholesale prices, but price pressures are still very severe,” wrote Peter Bokfar, chief investment officer at Bleakley Consulting Group.
The problem with the stock market is that as companies’ costs rise, they have to raise selling prices, which contributes to more consumer inflation — and encourages the Fed to move faster in raising interest rates, which poses a threat to economic growth and profits. In addition, some companies cannot raise prices sufficiently and their profit margins have been damaged.
The PPI result looked very similar to Wednesday’s CPI result, which was down from March, but not by much. Inflation still exists.
Year-on-year CPI was an 8.3% gain for the month of April, below the March result, but higher than expected. Markets have to contend with the fact that inflation is not falling too quickly, which could force the Federal Reserve to raise short-term interest rates faster than currently expected. The final result? possible recession.
“The Fed will want to see clearer evidence that inflation is easing and that higher interest rates are slowing demand before they start thinking about the end point of the current rate-raising cycle,” Bill Adams, chief economist at Bank of Comica wrote.
That may be true, but the markets have internalized it all by Wednesday. The market losses come after inflation-induced dips on Wednesday, which caused all three indices to sell off, with the Nasdaq down more than 3%.
The stock market has made one thing clear in the past few trading days: it hasn’t finished showing economic risks. Now below 4,000, the S&P 500 has fallen below key levels at which it previously found buyers to lift it. That opens the door to the possibility of the index falling below 3700 soon, writes Frank Cappelaere, chief market technical officer at Instinet.
Other indicators point to further declines as well, as ratings remain high. The S&P 500’s cyclically adjusted price-to-earnings ratio, which shows the index’s level divided by its average inflation-adjusted earnings over the past 10 years, is just a touch more than 35 times higher, according to 22V Research.
This is down from a multi-decade peak of nearly 39 years during the pandemic era. But historically, this ratio usually goes down much more from top to bottom. The indicator indicates that the decline in the ratio did not end until the halfway point. The reason – mainly – is that the risk to the economy refers to the risk of profits, and stock prices continue to move lower to reflect the potential for lower profits than is currently expected.
Tom Essaye, founder of Sevens Research wrote a report.
It fell 0.8%, falling in Tokyo
It ended down 1.8%.
As for why tech stocks are holding up at their best: Bond yields haven’t risen this week. The 10-year Treasury yield reached a pandemic-era closing high of 3.13% on Friday. Since then, it has fallen to 2.86%. The problem for tech stocks this year has been that higher long-term bond yields make future earnings less valuable, and many fast-growing tech companies are being valued on the basis that they will pump a large portion of their earnings into the future many years. These stocks may see some respite as the 10-year yield rises.
Even smaller market capitalization growth stocks managed to make gains. The iShares Russell 2000 Growth Exchange Trading Fund (IWO) rose 2.1%. These companies are growing faster and are valued based on a long-term stream of future profits.
While the stock sell-off was announced, it was felt worse in the digital asset space.
The largest cryptocurrency, lost 1.5% in the past 24 hours, traded at less than $29,000 and down more than a quarter a week ago. The smallest cryptocurrencies, including
It saw a bullish drop of 20%.
Here are six stocks on the move Thursday:
Companies that tied their fortunes to bitcoin were in wide circulation. After a 26% drop on Wednesday – after disappointing earnings and a warning to its customers – the cryptocurrency exchange
Coinbase Global (Stock ticker: COIN) was 8.9% higher on Thursday. software suite
micro . strategy (MSTR), which holds large holdings of bitcoin, is up 1.8% after declining 25% in the last session.
Ablofin (APP) lowered its full-year sales estimate, but shares jumped 35% after app monetization company executives raised the possibility of selling the app business.
Beyond Meat BYND stock fell 4.2% after reporting a larger-than-expected loss.
Rivian Cars (RIVN) stock jumped 18% after the company reported a loss of $1.77 per share, above estimates of a loss of $1.45 per share, on sales of $95 million, and below expectations of $133 million.
Walt Disney DIS stock fell 0.8% after the company reported earnings of $1.08 per share, topping estimates of $1.19 per share, on sales of $20.27 billion, beating expectations of $20.05 billion.
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