Will any good news on inflation help calm the markets?
Stocks and bonds started May the same way they ended April, with continued big price swings. With inflation being the big problem, the next Consumer Price Index report could help determine if the roller coaster continues.
Last Wednesday and Thursday, Morningstar’s US market index swung down and then up by a total of 7%, the largest two-day move since stocks emerged from the bear market triggered by the pandemic.
Meanwhile, bond yields also saw big moves. Yields fell after Federal Reserve Chairman Jerome Powell poured cold water on expectations that the bank would become even more aggressive than it already is with its half-point hike in the fed funds rate. On Thursday and Friday, yields resumed their upward march. The 10-year US Treasury bond ended the week at 3.13%, down from 2.89% the previous week, and the highest level since November 2018.
“The next few months are going to be full of volatility and ups and downs,” says Kristina Hooper, chief global market strategist at Invesco.
Hooper says that as the year progresses, the impact of rate hikes, rising bond yields and a lower stock market will help cool an overheated economy. Inflation should also start to moderate. But until then, the Fed will remain aggressive with its rate hikes.
Morningstar Chief US Economist Preston Caldwell offered a similar view on the wage inflation front following the April jobs report.
“Wage growth appears to be moderating to a more sustainable pace, with private wages averaging just a 0.3% monthly increase in the three months ending in April, or a 3.7% annual pace,” it says. Caldwell. “If this continues, and other supply-side headaches offer relief, the Fed will have room to soften breakouts in the second half of 2022.”
Investors will be watching for any signs of relief on the consumer inflation front on Wednesday when the Labor Department releases the April consumer price index report. Economists expect a 0.4% increase and a 6% increase year over year, according to FactSet. Last month the CPI was higher than expected with a 1.2% rise in March from February and an 8.5% rise over 12 months.
Proxy season continues next week, along with ConocoPhillips shareholder meetings (POLICEMAN) and Philips 66 (PSX), which will vote on resolutions to set greenhouse gas emission targets. Similar resolutions were approved by a majority of shareholders at meetings last year, but the companies did not implement them.
Events scheduled for next week include:
- Monday: BioNTech (BNTX) reports earnings.
- Tuesday: SoFi Technologies (SOFI) reports earnings. ConocoPhillips Annual Meeting. fortnite (FTNT) and shell (SHEL) investor days.
- Wednesday: Consumer Price Index report for April. walt-disney (DES)Western Petroleum (OXY)beyond the meat (BYND)and roblox (RBLX) report earnings. Phillips 66 Annual Meeting.
- Thursday: quickly (FLY) investor day.
For the trading week ending May 6:
- The Morningstar US market index fell 0.57%.
- Energy was the best performing sector, with an increase of 9.57%.
- The sectors with the worst behavior were real estate, with a drop of 3.65%, and cyclical consumption, with 2.97%.
- 10-year US Treasury yields rose to 3.13% from 2.89%.
- Oil prices rose $5.08 to $109.77 a barrel.
- Of the 868 US-listed companies covered by Morningstar, 363, or 42%, were up and 505, or 58%, were down.
What stocks are up?
The best performing companies last week were Shoals Technologies (SHLS)live (LTHM)shelter him (SUNRISE)Mother (MOTHER)and Devon Energy (DVN).
Sunrun Solar Power Company (TO RUN) it rebounded after beating Wall Street revenue estimates by 24%, according to FactSet. The rally extended to renewable equipment and storage solutions companies such as Shoals Technologies and Stem, which also closed higher.
Several oil companies rose after they posted earnings and market prices rose. Devon Energy, a pioneer in natural resources (PXD)and Coterra Energy (CTRA) advanced. Occidental Petroleum finished higher ahead of its earnings report next week.
What stocks are down?
The worst performing companies were Lyft (LYFT)Health Guardian (GH)under armor (AU)Heavenly Hain (HAINA)and Expedia (EXP).
Lyft fell after it lowered revenue and net profit expectations for the second quarter. Uber industry rival (UBER) it also traded lower despite showing strong earnings results in the first quarter.