Will the S&P 500 Index Stage a Comeback This Week?
May 15 2022 - 04:37PM
Finscreener.org
ItU+02019s quite possible for
equity investors to get a temporary reprieve in the upcoming week
after the markets have been in the midst of a downward spiral since
the end of March 2022. Most major indices gained momentum on Friday
and ended the last week with reduced losses as buyers went
bottom-fishing to buy stocks at a lower multiple.
The S&P 500 index rose
over 4,000 on Friday after touching 3,858 a day before. The
tech-heavy NASDAQ index surged almost 4% on Friday but still ended
the week 2.8% lower. Similarly, the Dow Jones gained 1.5% on Friday
but lost 2.1% last week. Global investors lost an astonishing $11
trillion in the week ended on May 13, marking the worst week since
the financial crisis of 2008-09.
According to technical analysts,
the rebound has the ingredients to last another week. The
bounce-back will most probably be led by
tech stocks that are down
around 70% to 80% from all-time
highs.
Further, the Federal Reserve will
not be meeting for the next few weeks which might support the rally
in the equity market. Market participants have been sweating over
the central bank’s decision to raise interest rates several times
which might offset inflation but result in a delay in economic
recovery. However, Jerome Powell, the Chairman of the Federal
Reserve is scheduled to speak at a conference hosted by the Wall
Street Journal on Tuesday.
Equity markets expect interest
rates to rise by 0.5% each in June, July, and September. Any upward
deviation will lead to a sustained sell-off in indices all over the
world. The Fed has already raised interest rates by 1% in
2022.
In the next week, the economic
calendar will include retail sales data for April as well as a
survey by the National Association of Home Builders. Retail giants
such as Walmart (NYSE: WMT), Target (NYSE:
TGT), and Home Depot
(NYSE:
HD) will also be reporting quarterly results this
week and will provide a peek into the metrics such as inflation and
consumer spending.
The S&P 500 is close to entering a bear
market
Despite the spike on Friday, the
S&P 500 is trading precariously close to a bear market. It
is trading 16% below record highs which is just below the bear
market territory which marks a decline of 20% from all-time
highs.
A key reason for the one-day
surge in the stock markets can be attributed to slowing bond
yields. An unrelenting run-up in interest rates saw yields touch a
multi-year high of 3.2% before closing the week at
2.93%.
In an
interview with
CNBC, the chief
investment strategist at Leuthold Group stated, “I think what’s
most encouraging to me is the rate rout has stopped. All year long,
short-term yields have been pushing up the 10-year
yields.”
The reduced pressure of rising
interest rates might lead to a recovery in stock markets. In 2022,
increasing yields have already impacted housing sales due to an
increase in home mortgages.
Additionally, growth and tech
stocks have been among the worst hit as an inflationary environment
and higher rates will impact earnings as well as revenue in the
near term.
In addition to interest rates and
inflation, companies are wrestling with a range of macro-economic
issues such as supply chain disruptions, rising commodity prices,
and much more.
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