Here’s Why the S&P 500 Is Expected to Remain Choppy This Week!
April 17 2022 - 4:36PM
Finscreener.org
The S&P 500 index fell by
2% in the last week ended on April 14, 2022. It means, the flagship
stock market index has now fallen 7.54% year to date and this tepid
performance is likely to continue in the near term.
The key catalyst which will
impact equity investors in the next four weeks is corporate
earnings for Q1 of 2022. However, market participants will also
have to consider the impact of macro-economic events that include
inflation, rising interest rates, higher commodity prices, supply
chain disruptions, and the ongoing war in Ukraine.
It will be interesting to see the
management comments on how these issues will impact revenue and
earnings for enterprises in Q2 and beyond.
In addition to macro events, the
National Association of Home Builders will also release their
survey on Monday while housing starts data and existing home sales
data will release in the following days. Additionally,
manufacturing and services PMI surveys will be issued on
Friday.
IBM, Netflix, and Verizon will report Q2 earnings next
week
In an interview with CNBC, the
chief equity strategist Jonathan Golub at Credit Suisse, “I think
the market is so focused on the Fed and inflation and everything
else that stocks will have a very weak response to earnings. I
think the market is going to trade up, but the market is not going
to give companies full credit.”
The seven companies part of the
Dow Jones Industrial Average Index reporting Q1 earnings in the
next week include IBM (NYSE:
IBM), Johnson and Johnson
(NYSE:
JNJ),
Verizon (NYSE:
VZ),
American Express (NYSE:
AXP), Dow
Inc (NYSE: DOW), Travelers
(NYSE:
TRV), and Procter and
Gamble (NYSE:
PG).
Further, tech companies such
as Netflix (NASDAQ: NFLX)
and Snap (NYSE:
SNAP) as well as leading
electric vehicle manufacturer- Tesla
(NASDAQ: TSLA)
are all scheduled to report earnings in the next five
days.
Most analysts expect corporate
guidance for the rest of the year to be less than encouraging due
to cost pressures which will be reflected in the compression of
profit margins.
Analysts forecast S&P 500 earnings to increase
6.3%
Wall Street expects earnings to
increase by 6.3% year over year in Q1, based on data compiled by
Refinitiv. Companies part of the energy sector should, however,
benefit from rising oil prices and are well-positioned to outpace
the broader market.
Alternatively, earnings for
banking companies should experience a steep decline. For example,
JPMorgan’s
adjusted earnings in Q1
fell to $2.63 per share compared to
$4.5 per share in the year-ago period.
Last year, JPMorgan and its peers
benefitted from higher earnings due to the release of
pandemic-related allowances for credit losses. These reserves were
accumulated at the beginning of COVID-19 to offset the possibility
of higher delinquency rates. But these reserves should wind down in
upcoming quarters.
Growth stocks should continue to
underperform as treasury yields gain momentum making capital
borrowing an expensive process. The 10-year Treasury yield rose to
2.83% on Wednesday
compared to 2.7% on April 8.
There is a good chance for
companies part of recession-proof sectors such as consumer staples
and healthcare to derive outsized gains going forward. On the other
hand, economically sensitive sectors such as financials,
construction, and transportation might experience a downtrend,
which suggests investors are wary of slowing growth in an
inflationary environment.
While the risk of a full-blown
economic recession might be unlikely, global economic growth will
slow down in 2022.
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