Investors appear to be buying up bonds as S&P 500 futures point to a lower open.
S&P 500 Futures Point to a Lower Open as the PPI Reveals Higher Inflation on the Wholesale Level
Falls More than 5%, Potentially Blasting a Bigger Hole in the Technology Dam
Retailers Haven’t Fared Well, Can Next Week’s Earnings Line Up Bring Prices Up?
Shawn Cruz Director of Derivative Strategy, TD Ameritrade
(Thursday Market Open) Before the market open, the S&P 500 futures were trading below the 3,950 level, which some technical analysts saw as support for the index. The Cboe Market Volatility Index (VIX) jumped back above 34 suggesting an increase in investor uneasiness. And the 10-year Treasury yield (TNX) has fallen another 89 basis points as investors appear to be headed for safe havens versus just going to cash.
Not helping matters much, April’s Producer Price Index (PPI) showed inflation at the wholesale level rose a 0.5% rate in April over March, though that reading was in line with forecasts. However, PPI grew 11% year over year, above the 10.7% forecast. Higher input costs can result in narrower profit margins or price hikes for consumers that can translate to fewer sales for companies.
Despite the large number of job openings reported earlier this week, initial jobless claims came in higher than expected at 203,000 instead of the 195,000 forecasted.. However, on a month-to-month basis, continuing jobless claims were lower than expected.
In earnings news:
As electric vehicle (EV) manufacturers including Tesla (TSLA) and Fisker (FSR) lost ground on Wednesday, EV truck and sport vehicle maker Rivian (RIVN) gained more than 7% in after-hours trading after reporting a slimmer-than-expected loss for the first quarter. Ford (F) disclosed in an SEC filing late Tuesday that it sold eight million of RIVN’s shares on Monday. Investors expected a loss per share of $1.40 on revenue of $132.7 million.
Stocks finished Wednesday’s regular session in the red after April’s Consumer Price Index (CPI) couldn’t deliver a swift reprieve from 40-year-high inflation still moving at full gallop.
Tuesday’s modest Nasdaq Composite ($COMP) win turned into a 3% loss on the day, followed by a 1.4% drop in the S&P 500 (SPX) and a Dow Jones Industrial Average ($DJI) loss of 0.8% by the closing bell.
April’s widely, and perhaps wildly, anticipated Consumer Price Index (CPI) slipped to a slightly lower annual rate of 8.3% before the market opened. But once investors got a closer look, there was little celebration as prices for groceries, restaurant meals, and airline travel—key ingredients in any successful summer vacation—stayed stubbornly high.
Core CPI, which doesn’t include food and energy prices, gained 6.2% compared to an anticipated 6%. Month-to-month, headline CPI rose 0.3% and core rose 0.6%, far from ruling out that inflation might be peaking—or that price increases could continue.
The Federal Reserve’s goal of a “soft landing” against recession looks even tougher now, especially with remarks later Wednesday from Federal Reserve Bank of Atlanta President Raphael Bostic that he was open to “moving more” on interest rates if inflation persists. The Fed raised its key interest rate 50 basis points last week, and many analysts noted that Wednesday’s CPI number all but assured similar rate hikes in June and July.
So, for those now envisioning a summer at home much like the last two, Walt Disney (DIS) seems prepared to keep everyone entertained. The company’s shares rose more than 4% in trading after the close after stronger-than-expected results in streaming subscribers across all of its media offerings. The company’s shares have declined 30% since January and more than 40% year to year.
Tech stocks continued to slide, with Meta Platforms (FB) losing 4.5%, Salesforce (CRM) down 5.96%, and Microsoft (MSFT) falling 3.32% by the close. Apple (AAPL) experienced a rare plunge in price—falling 5.18% on Wednesday and is now trading below its March 14 low. Apple has been the marquee bellwether but is now down more than 19% from its all-time high and could be a big a hole in the technology dam. Significantly, even if temporarily, AAPL’s fall Wednesday made it the world’s second-most-valuable company behind oil giant Saudi Aramco.
CHART OF THE DAY: FALLING PRICES. The Dow Jones U.S. Retail Index ($DJUSRT—candlesticks) broke support last week prompting a five-day slide. The next level of support appears to be just above the 1,500 level. Data Sources: ICE, S&P Dow Jones Indices. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.
Retail is Telling: The Dow Jones U.S. Retail Index has fallen 33% from its all-time high and is now trading at 2020 levels. As part of the consumer discretionary sector, retailers have been among the worst- performing industry groups in 2022. Specialty retailers have been hit the hardest within the Dow Jones U.S. Specialty Retailers Index, falling 45% off their all-time high. Retail drug stores have actually exhibited some strength with the Dow Jones U.S. Drug Retailers Index down only 7% from its high. Apparel and broadline retailers have fallen in line with the broader industry group.
While various retail stores have announced earnings throughout the season, the retail sector as a whole will receive greater scrutiny next week as Walmart (WMT), Home Depot (HD), and many more stores report earnings. Additionally, Tuesday’s retail sales report will provide insights into how we’re shopping nationwide.
Shopping in Paris: Many analysts follow luxury goods as a way to measure the consumption habits of the wealthy—and for an early warning if the rich are starting to pinch pennies. That’s a sign times are getting are getting particularly tough. The S&P Global Luxury Index has fallen 35% since its all-time high back in November. That drop may reflect a slowdown in demand for luxury goods, but luxury goods companies aren’t immune to higher input costs and supply chain issues either.
Surprisingly, the French CAC 40, which contains many luxury companies like Louis Vuitton, Kering, Hermes, and so forth, is down just 17%, currently on pace with the S&P 500 (SPX) index.
One reason for the strength in France may be because more than 70% of the country’s energy needs comes from nuclear power, according to Statista. This means the country isn’t feeling the energy crunch the rest of their European neighbors are feeling from their reliance on Russian gas and oil. The French April Consumer Price Index (CPI) will be reported on Friday. It’s forecast to rise to 4.8%, higher than last month’s 4.5%, but lower than the 8.3% U.S. rate announced yesterday.
The Art of Investing: Earlier this week, Andy Warhol’s iconic painting “Shot Sage Blue Marilyn” was auctioned for a record-breaking $195 million, making it the most expensive piece of 20th Century art ever sold and the highest price ever paid for an American work of art. Fine art can often bridge the gap between luxury goods and investments. However, art is usually a long-term investment because art buyers tend to hang on to their pieces for a long time. It can also be expensive to sell art because auction houses can charge anywhere from 5%-25% commission. Of course, not every piece of art will appreciate or maintain its value because art tends to suffer during recessions too, and some artists fail to stay in vogue.
May 13: Michigan Consumer Sentiment and earnings from Honda (HMC)
May 16: Earnings from Take-Two (TTWO) and James Hardie Industries (JHX)
May 17: Retail Sales and earnings from Walmart (WMT) and Home Depot (HD)
May 18: Building permits and earnings from Cisco (CSCO), Lowe’s (LOW), Target (TGT), TJX Companies (TJX), and NetEase (NTES)
May 19: Philadelphia Manufacturing Index, Existing home sales, and earnings from Salesforce (CRM), Applied Materials (AMAT), and Kohls (KSS)
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