Commentary provided by Mark Szycher, Vice President, Investment Specialist, AIG Retirement Services
Market Performance Snapshot* (Week ending April 29, 2022, April 2022 and Year-to-date)
- Dow Jones Industrial Average®: -2.5% | -4.9% | -9.2%
- S&P 500® Index: -3.3% | -8.8% | -13.3%
- NASDAQ Composite® Index: -3.9% | -13.3% | -21.2%
- Russell 2000® Index: -3.9% | -10.0% | -17.0%
- 10- year U.S. Treasury note yield: 2.93%
- Up 3 basis points from 2.90% on April 22, 2022
- Up 142 basis points from 1.51% on December 31, 2021
- Best-performing S&P 500 sector this week: Materials, -0.8%
- Weakest-performing S&P 500 sector this week: Consumer Discretionary, -7.9%
- Best-performing S&P 500 sectors in April 2022: Consumer Staples, +2.4%, Energy, -1.6%, Materials, -3.5%
- Weakest-performing S&P 500 sectors in April 2022: Communications Services, -15.8%, Consumer Discretionary, -13.0%, Information Technology, -11.3%
*Past performance is no guarantee of future results.
Equities reach the end of a difficult April
Equity markets closed a difficult month with another negative week. Global factors and the prospect of aggressive monetary tightening by the Fed continued to weigh on investor sentiment while earnings of certain high-profile tech companies fell short of consensus estimates. Treasury yields remained at their highest levels since prior to the pandemic as markets await the Fed’s next rate decision May 4th.
- Stocks in the U.S. got off to a rocky start Monday after Asian markets dropped on concerns about further COVID lockdowns in China. The Ukraine conflict injected additional uncertainty as Russia halted gas shipments to Poland and Bulgaria in response to the two countries refusing to pay for natural gas in rubles. Natural gas prices in Europe initially soared more than 20%, but ended the week up only slightly, and well below March highs.
- As reported by the U.S. Department of Commerce, real U.S. GDP unexpectedly fell 1.4% in the first quarter of 2022, mainly on lower inventories and a widening trade gap, which was likely exacerbated by supply chain delays. Consumer spending increased while government spending decreased. Markets largely shook off this first read on the quarter; the figure may be revised based on additional data.
- The Commerce Department also reported the Personal Consumption Expenditures (PCE) price index—a measure of inflation—rose 0.9% from February to March and 6.6% on the year, the highest since January 1982. Much of the increase was concentrated in energy prices, which rose 33.9% annually, and food prices, which rose 9.2%. Core PCE—the Fed’s preferred inflation gauge, which excludes volatile food and energy costs—rose 0.3% on the month (equal to February’s rise) and 5.2% on the year (a tick lower than February).
- Personal income grew 0.5% in March, which wasn’t enough to keep pace with inflation. Real personal income (factoring in inflation) declined 0.4%. Still, consumption rose at a faster pace in March than in February as consumers dipped into savings—the personal savings rate declined to 6.2% from 6.8% in February.
- The Department of Labor’s Employment Cost Index—measuring wages and benefits paid to civilian workers—rose 1.4% in the first quarter of 2022, faster than the previous quarter’s 1.0%. Wages and compensation rose 4.7% in the 12 months ending March 2022 versus 2.7% in the 12 months ending March 2021.
- Durable goods orders rose 0.8% in March—the fifth rise in six months—resuming upward momentum after February’s 1.7% drop. Computers and electronics led the increase, with autos also up sharply.
- The S&P CoreLogic Case-Shiller National Home Price Index registered a rise of 19.8% during the 12 months ending in February, the highest increase since August 2021. The strong figure reflects tight inventories but lags the recent rise in mortgage rates.
Tech earnings show cloud growth, along with advertising and supply chain challenges
The busiest week of earnings season brought mixed results from major tech companies, while manufacturers struggled with supply chain issues and food and beverage companies witnessed the impact of inflation on consumers.
- Microsoft beat revenue and earnings expectations, as robust growth in cloud services continued.
- Alphabet, Google’s parent company, fell short on revenue and earnings, but sales were still up 23% over last year. Cloud revenue topped expectations, though the unit hasn’t yet turned a profit. Search ad revenue held up well, driven in part by an increase in travel-related searches; however YouTube advertising revenue came in below estimates, hurt by declines in Europe following the Ukraine invasion.
- Facebook parent Meta Platforms experienced slower growth, but an unexpected increase in daily active users pushed the stock up more than 15%. Advertising revenue fell short of expectations as Apple’s change to its ad-tracking policies continues to weigh on ad-driven tech companies.
- Apple exceeded earnings expectations as iPhone demand remained strong, sending revenue nearly 9% higher than last year. The company announced additional share buybacks and raised its dividend. However, Apple also acknowledged “supply constraints caused by Covid-related disruptions and industrywide silicon shortages” could dent revenue by $4-$8 billion in the current quarter.
- Amazon sunk to a quarterly loss as revenue growth slowed and its investment in electric vehicle maker Rivian Automotive lost value. The company also issued current-quarter sales guidance below analysts’ expectations, sending the stock down 14%. On the bright side, the Amazon Web Services cloud unit topped expectations.
- Twitter fell just short of revenue expectations but topped expectations of the number of daily users. Separately, shares jumped after the board accepted a buyout offer from Elon Musk. Meanwhile, Tesla shares dropped 12% on concerns about the Twitter deal’s possible impact on Musk’s Tesla ownership and focus as CEO.
- General Motors topped adjusted earnings estimates and raised its full-year net income outlook. The company said semiconductor shortages improved somewhat in the quarter, but inventories remain tight and its ability to raise prices couldn’t fully compensate for rising input and logistics costs. Ford met revenue and adjusted earnings expectations and affirmed its forward guidance, though profit declined as supply chain challenges continued. Further, Ford’s results were depressed by its stake in Rivian Automotive.
- Boeing posted a bigger loss and lower revenue than expected amid higher costs, supply chain problems, production delays, and impacts from the Ukraine conflict.
- Coca-Cola beat on the top and bottom lines. Higher prices helped offset higher input costs, but the company expressed concerns about consumers’ willingness to accept rising prices.
- McDonald’s beat revenue and earnings expectations as higher prices compensated for higher commodity and labor costs, however the company noted that some lower-income customers are shrinking orders as inflation bites.
April wrap-up: Equities fall, Treasury yields jump
Equities couldn’t carry the momentum from the end of March into April, as the Dow Jones Industrial Average, S&P 500, and NASDAQ Composite all declined sharply over the course of the month. Concerns about inflation and Fed officials’ increasingly aggressive talk of rate rises pushed up Treasury yields, weighing on growth stocks. The NASDAQ Composite endured its steepest monthly loss since October 2008. The ongoing Ukraine conflict and China’s COVID lockdowns precipitated concerns about global economic growth, pushing the broad-based S&P 500 to its lowest close in 2022.
- While equities suffered across the board in April, growth stocks bore the brunt. The Russell 1000 Growth index fell 12.1% for the month, more than double the Russell 1000 Value index’s 5.8% decline.
- Treasury rates at all maturities jumped, with the yield curve inverting (shorter rates rising above longer rates) at various points. The 10-year yield rose from 2.34% at the start of the month to 2.93% at the close. The 2-year yield rose from 2.34% to 2.72%. The 3-month yield jumped from 0.51% to 0.83%. Markets now expect a 50 basis point rate hike at the Fed’s May meeting, possibly followed by one or more 50 basis point hikes at subsequent meetings.
- International equity markets were generally negative, though London’s FTSE index rallied to eke out a slight gain for April. The pan-European Stoxx 600 slipped 1.2%, Japan’s Nikkei dropped 3.5%, Hong Kong’s Hang Seng index dipped 4.1% and the Shanghai index slumped 6.3%.
- Many commodity prices continued to rise, but movement wasn’t uniformly higher. Corn rose 8.6% in April and is near record levels, up 37.2% year-to-date; wheat rose 4.9% in April and is 37.0% higher this year; palladium rose 2.6% on the month and is up 21.6% this year and copper fell 7.7% in April and is now down 1.7% in 2022.
- West Texas Intermediate crude rose 3.8% in April and is 38.0% higher this year. Gasoline futures rose 8.9% in April and are up 54.7% year-to-date. Russia-Ukraine issues pushed natural gas prices to their highest level since 2008, with U.S. futures up 30.5% in April and 105.2% this year. European natural gas futures are 60% higher year-to-date.
Final thoughts for investors
Volatility continues across asset classes as companies issue mixed earnings reports and future guidance, and inflation and international events pose shifting challenges to corporations, consumers, investors, and policymakers. Though market swings can be unsettling, stay focused on long-term goals and speak with a financial professional about navigating the road ahead.
VC 30955 (05/2022) J863510 EE