Dodging the bear, for now: Week ahead in US markets
Stocks stage a come back to avoid falling into bear territory as TreeHouse Foods, BioNTech rally.
While stocks ended the most recent week on an up note, it was only after they came within a hair of officially entering a new bear market.
The Morningstar US Market index finished finished the week by losing another 2.4%, bringing the year-to-date decline to nearly 17%.
For a while Thursday it looked like stocks--as measured by the S&P 500--were on the brink of closing down 20% from their all-time high. That makes for an “official” bear market. At its worst levels on Thursday, the S&P was down 19.54% from its January 3 close. The Morningstar US Market index hit an intraday low of 20.87% from its high.
However, the market staged a solid recovery from those lows and rallied Friday.
Why?
As veteran markets observers have noted for months , we’re in for continued volatility , and that doesn’t just mean prices fall. Down markets are replete with bear market rallies.
What will it take for the market to stage a meaningful recovery?
Steve Sosnick, chief strategist at Interactive Brokers points to two factors.
“The classic ways that lasting bottoms are formed is that you need some sort of change in fiscal or monetary policy,” he says. “The Covid bottom was put in when the Fed brought out the heavy artillery. Right now, however they are actively reducing liquidity from the market place and that’s not helpful. The market is going to have a tough time,” Sosnick says.
Another, harder to measure indicator is investor sentiment. And Sosnick says that despite the big declines in 2022, we haven’t yet seen a true capitulation by bullish investors. “You haven’t seen people that say ‘just get me out,” he says. “To make a more intermediate bottom, you really need to see sentiment get truly washed out.”
The coming trading week will be light on major economic data, with retail sales due to be released Tuesday. Investors will be watching earnings from Walmart (WMT) and Home Depot (HD), and looking for evidence on how inflation is affecting consumer spending.
Proxy voting season also continues, with important measures coming up at a number of companies. JPMorgan Chase’s (JPM) annual meeting Tuesday will see two votes on fossil fuel financing policies. Wendy’s (WEN) annual meeting Wednesday will include a “vote no” campaign against board members over treatment of farm workers among suppliers. At Home Depot’s annual meeting Thursday, the company will face a shareholder vote on deforestation.
Events scheduled for the coming week include:
- Tuesday: Walmart and Home Depot report earnings. April U.S. retail sales data released.
- Wednesday: Cisco (CSCO), Target (TGT), and Macy’s (M), and Lowe's (LOW) report earnings.
- Thursday: Kohl’s (KSS) reports earnings.
For the trading week ending May 13:
- The Morningstar US Market Index fell 2.43%.
- The best-performing sector was consumer defensive, up 0.18%.
- The worst-performing sectors were consumer cyclical, down 3.65%, technology 3.24%, and real estate 3.24%.
- Yields on the U.S. 10-year Treasury fell to 2.93% from 3.13%.
- Oil prices fell $3.64 to $106.13.
- Of the 868 U.S.-listed companies covered by Morningstar, 271 or 31%, were up, and 597, or 69%, declined.
What stocks are up?
The best-performing companies in the past week were TreeHouse Foods (THS), BioNTech (BNTX), Roblox (RBLX), Malibu Boats (MBUU), and Perrigo (PRGO).
Solid quarterly results lifted shares for many of the top performers last week. Treehouse Foods revealed that despite increasing prices, the company’s sales grew in the last quarter.
Roblox also traded higher after showing an improvement in daily active users, which rose to 53.1 million from 49.5 during the quarter. Impressive results from BioNTech and Malibu Boats sent their shares higher.
What stocks are down?
The worst-performing companies were Coinbase (COIN), GoodRx (GDRX), RealReal (REAL), Pegasystems (PEGA), and Bed Bath & Beyond (BBBY).
Upsetting news revealed alongside earnings results wiped off as much as billions from many companies in the past week.
Shares of Coinbase tumbled after declining cryptocurrency trading volume left revenue falling more than 50% from the previous quarter’s levels. The company also revealed that cryptocurrencies it holds on behalf of customers could be used to pay back debt in the event it files for bankruptcy, the Wall Street Journal reports.
GoodRX shares fell despite beating revenue and earnings expectations. A dispute between grocers and pharmacy benefit managers raised concerns over future revenue growth. Palantir (PLTR) also fell in light of a lower-than-expected outlook for the second quarter.
Twitter (TWTR) shares fell after Tesla (TSLA) CEO Elon Musk put his buyout offer on hold, saying he wanted to confirm the level of bot activity on the site.