Why the S&P 500 Index Is Poised to Move Lower This Week?
May 22 2022 - 3:59PM
Finscreener.org
Technology stocks are
experiencing a sell-off similar to the dot-com bubble. Last week,
the Nasdaq Composite Index fell close to 4% marking the seventh
straight week of decline. It was the longest losing streak for the
index in the last 21 years.
The
triple whammy of
inflation, geopolitical tensions,
and higher interest rates continue to weigh heavily on investor
sentiment. Add the impact of lockdowns in China as well as rising
commodity prices and it seems like a recipe for disaster. We can
understand why several economists are forecasting a global
recession by the end of 2022.
The Federal Reserve will continue
to raise interest rates to combat inflation. So, higher costs of
capital coupled with lower consumer spending will impact the bottom
line of corporates in 2022.
The Nasdaq index is down almost
30% below compared to record highs while the S&P 500 index
briefly entered bear market territory on Friday, indicating a
decline of 20% from all-time highs.
Will the S&P 500 decline in the upcoming
week?
A key catalyst for the equity
markets this week will be the quarterly results of retailers such
as Costco (NASDAQ:
COST) and Best Buy
(NYSE: BBY).
Additionally, personal consumption expenditures or PCE data which
includes data on income, inflation, and spending will also be
released in the upcoming week.
Last week less than impressive
results by Target and Walmart drove equity indices significantly
lower on fears of lower consumer spending and falling profit
margins.
So, is the equity market
bottoming out or will there be more pain for investors going
forward? In the last three markets where there was no recession,
the S&P 500 declined by 21.3% on average. However, in the
case of a recession, the average decline for the stock market stood
at 47.9%.
A weak macroeconomy also impacted
networking giant Cisco (NASDAQ:
CSCO) as the company
projected a revenue decline in the current quarter. Cisco stock
fell 13% after it reported its quarterly results last week after it
explained the guidance reflects the decision to cease operations in
Belarus and Russia, in addition to supply chain disruptions arising
from lockdowns imposed in several Chinese provinces.
Cisco stated, “Given this
uncertainty, we are being practical about the current environment
and erring on the side of caution in terms of our outlook, taking
it one quarter at a time.”
What next for investors?
In addition to PCE data,
investors will be closely watching the new home sales data for
April as well as indicators for durable goods consumption both of
which might show an improvement.
It makes sense for investors to
focus on companies that are defensive in nature and that enjoy a
certain amount of pricing power in the current investing
environment which is volatile and uncertain. Further, over the
near-term, projected earnings growth, depressed multiple, and high
short interest ratios are likely to impact stock prices.
In addition, investors can also
look to buy value stocks that are trading at a discount to benefit
from market-beating returns.
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