Depression continues beyond the fear of stagflation

The New York Stock Exchange signed a new fall on Thursday after experiencing the worst session of the previous day in almost two years in the midst of the coronavirus crisis. Concerns about the recession caused by the Fed’s monetary tightening cycle continue to dominate investors’ minds as the latest corporate performance and “macro” indicators are beginning to show signs of economic weakness in the United States.

At the closing price, the Dow Jones fell 0.75% from -3.57% the day before to 31,253 points, and the S & P 500 index fell 0.58% from -4% on Wednesday to 3,900 points. The Nasdaq Composite is rich in technology and biotechnology stocks, plunging 4.7% on Wednesday and then down 0.26% to 11,388 points.

After Nasdaq, which is currently giving up 29% at its highest, the S & P 500 is now approaching the bear market with a loss of 18.6% compared to its early January high. Dow Jones has corrected its historic high on January 4th by 15%.

Nine of the 11 S & P 500 sector indexes have lost an average of another 2% after Wednesday’s -6.4% in response to the disappointing results of retail giants, including Wal-Mart (-2.7%). It was towed by and fell. Targets who lost 20% in 3 sessions and 30% in 2 sessions (-5%). Treasury (-0.7%) and technology (-1% after -4.7% on Wednesday) also remained difficult on Thursday. Cisco Systems plunged 13.7% after reporting disappointing sales as the blockade in China and the Ukrainian conflict forced it to withdraw from Russia.

In Gafam, Apple is still down 2.46% (after -5.6% on Wednesday), Amazon is recovering 0.2% after -7.1% on Wednesday, Alphabet is down 1.3% after -3.9% the day before, Meta Platforms fell 0.5% (since -5.1%), and Microsoft fell 0.37% after falling 4.5% on Wednesday.

Euro rebounds and ECB ready to raise interest rates

In the bond market, interest rates continued to fall on Thursday as investors evacuated to low-risk assets, including bonds, pushing yields down. The 10-year T-Bond rate fell another 3 basis points to 2.85% at the end of the evening, and the 2-year T-Bond rate fell 4 bp to 2.62%. After the release of the minutes of the ECB’s last meeting, the dollar index fell 0.9% against a basket of benchmark currencies to 102.88 points and the euro fell 1.13% to $ 1.0585. European Central Bank officials have confirmed their desire to quickly raise key interest rates in the face of rising inflation.

On the Federal Reserve Bank’s side, Chicago Fed Chair Charles Evans sees interest rates above neutral for some time. Patrick Harker, head of the Philadelphia Federated Bank, expects a 50 basis point increase in the future, but believes the future remains uncertain. For Esther George (Kansas City Federal Reserve Bank of Kansas City), the turmoil in financial markets has asserted that the Fed’s plans to raise key interest rates will remain in favor of lowering inflation.

In this regard, the Fed’s indicators released Wednesday showed that supply chain pressure worsened in April. Studies show that the blockade of the new coronavirus in China and the war in Ukraine have increased delivery times and boosted costs.

On her side, US Treasury Secretary and former Fed boss Janet Yellen warned that rising food and energy prices had a “stagnation” effect. The IMF’s managing director, Cristalina Georgieva, said economic and financial leaders need to be prepared to counter multiple inflationary pressures.

Inflation puts pressure on corporate profits

Therefore, in the face of stagnation and fear of rising federal interest rates, investors remain in “risk avoidance” mode. Quarterly earnings announcements from retail giant Walmart and Target raise concerns about the impact of inflation on merchant profit margins and how consumers are restructuring spending to adapt to rising prices. It is increasing.

Headwinds in corporate margins have fueled concerns about a general downward revision of analysts’ consensus on earnings in 2022. This revenue risk is also heightened by China’s Covid-related blockade and the war in Ukraine. Earnings season.

Signs of slowdown in the “macro” indicator

As companies begin to feel the effects of inflation, the latest macroeconomic indicators show signs of a slowdown across the Atlantic. Therefore, unemployed bills for the week ending May 15 were 218,000, higher than expected, against FactSet’s consensus of 200,000. In addition, the Philadelphia Federation’s manufacturing index for May was only 2.6, well below the consensus (17).

In line with FactSet’s consensus, home sales in April fell 2.4% to 5.61 million units. Over the course of a year, these sales declines are 5.9%. On Wednesday, housing starts and building permits also stalled in April. Finally, the index of key indicators calculated by the Conference Board fell 0.3% in April compared to March, which was expected to stabilize.

Bitcoin, which plunged to $ 26,000 last Thursday, was $ 30,150 in the evening, up 3.3% in 24 hours, testing a threshold of $ 30,000. From the November 2021 record, it has remained close to $ 69,000. Gold rebounded on Thursday, rising 1.4% to $ 1,841.20 on June’s COMEX futures.

Finally, oil prices fell at the beginning of the day and finally rose on Thursday night. US WTI light crude (July futures contract) barrels rose 2.7% to $ 109.89 in Nymex, and Brent North Sea crude oil due in July rose 2.5% to $ 111.89. Prices were revised on Tuesday and Wednesday amid concerns about a global economic slowdown.

Value to follow

Cisco was down 13.7% following the announcement of quarterly financial results. Revenues were slightly higher than expected, but sales missed analysts’ consensus significantly due to China’s “Zero Corona” policy and the war in Ukraine. US network equipment giants have also revised their forecasts for the entire fiscal year downwards due to the negative effects of the turmoil associated with China and Ukraine. Management said the suspension of the Group’s operations in Russia and Belarus due to an ongoing conflict had significantly impaired earnings growth.

Cisco Systems third-quarter net income was $ 3.04 billion, compared with $ 2.86 billion (+ 6.3%) in the year-ago quarter. Adjusted earnings per share is 87 cents, slightly above Refinitiv’s IBES analyst consensus forecast of 86 cents. Meanwhile, sales were $ 12.8 billion, stable compared to the same period in 2021, when the market expected $ 13.87 billion. In the current fourth quarter, Cisco forecasts EPS of 76-84 cents and revenue of $ 1.21-12.67 billion (down 5.5% to 1% over the year). Analysts expected EPS to be 92 cents higher and revenue to be around $ 13.87 billion.

Throughout the current fiscal year, Cisco currently expects sales to increase by 2% to 3% (not at least 4.5% previously expected). Adjusted earnings per share forecast has also been reduced from the previous forecast of $ 3.41 to $ 3.46 to $ 3.29 to $ 3.37.

In a conference call after the account was released, Cisco CEO Chuck Robbins said, “Revenue performance in the coming quarters will be less demand-dependent and more dependent on supply availability in this environment. It will be more and more complicated, but he felt that “the underlying growth driver of our business remains strong and confident in the long run.”

Tesla (stable after -6.8% on Wednesday). Elon Musk was angry that Tesla was removed from the S & P ESG (Environment, Society, Governance) index during accident investigations and working conditions during conflict.

BJ’s Wholesale (+ 7.4%), an American chain of membership-based warehouse clubs, held up quite a bit throughout the quarter, recording higher-than-expected sales and profits. This publication has been welcomed on Wall Street, but recently some major American distribution groups, especially Wal-Mart and Target, have been disappointed. BJ announced a quarterly net income of $ 112.5 million, 82 cents per share, ending in April. That’s against $ 81.6 million in the year-ago quarter. Excluding the item, the adjusted earnings per share was 87 cents, but the consensus was 72 cents. Revenues were up 16.2% to $ 4.5 billion, while FactSet’s consensus was $ 4.24 billion. Similar growth exceeded 14%.

Coles (Wednesday -11% to + 4.4%) announced that first-quarter accounts were below market expectations. This is the latest US retailer to warn that inflation will have a significant impact on profits. As a result, chains trying to market themselves announced a flat margin in the first quarter. In addition, CEO Michelle Gass said April sales fell sharply. Adjusted earnings per share for 2022 are expected to be between $ 6.45 and $ 6.85, compared to the previous guidance of $ 7 to $ 7.5. Sales growth in 2022 should not exceed 1%. First-quarter sales were down 5.2%, but diluted EPS was 11 cents.

Bath & Body Works corrected another 6.8% after a comparable dip on Wednesday. The group exceeded the profit consensus for the quarter it ended, but reduced its annual guidance to reflect economic conditions and investments. The company’s first-quarter sales were $ 1.45 billion, down 1% year-on-year. Diluted EPS from continuing operations was 64 cents, compared to 32 cents the previous year. However, caution should be exercised in predicting the US beauty and household goods chain. This year’s group expects EPS to continue to operate in the $ 3.8 to $ 4.15 range, which is a downward revision.

Boeing (+ 1.29%). IAG chose the Boeing 737 Max. The parent company of British Airways, Vueling and Iberia, which promised to buy up to 200 aircraft at the 2019 Paris Air Show, will eventually acquire 25 B737Max200s and 25 B737Max10s. Aircraft can be used by any airline in the group for regular fleet replacement. We will deliver it from next year. At list price, the deal for the 50 aircraft amounts to about $ 6 billion, but the airline said it had negotiated a “significant discount.”