Will the markets get some good news on inflation?
Stocks and bonds started the month of May like they ended the month of April, with more wild price swings. With inflation the big bugaboo, the next Consumer Price Index report will help decide whether the roller-coaster ride continues.
On Wednesday and Thursday, the US Market Index swung down and then back up a total of 7%, the largest two-day move since stocks were emerging from the pandemic-caused bear market.
Bond yields, for their part, also moved significantly. Yields dipped after Federal Reserve Chairman Jerome Powell poured cold water on hopes that the bank would be getting even more aggressive than it already is with its half-point increase in the federal-funds rate. Yields resumed their march higher on Thursday and Friday. The yield on the U.S. Treasury 10-year note ended the week at 3.13 percent day, up from 2.89 percent just a week earlier, and a level not seen since November 2018.
“The next few months are going to be ninja-like volatility, with ups and downs,” said Kristina Hooper, global chief market strategist at Invesco.
As the year progresses, the impact of the rate increases, higher bond yields and a lower stock market will cool an overheated economy, Hooper says. By then, inflation ought to start to moderate. But until then, the Fed will keep being aggressive with its increases in interest rates.
“Wage growth does seem to be moderating to a more sustainable pace private wages averaged an increase of only 0.3% month-on-month in the three months to April, or a 3.7% annual pace,” Caldwell says. “But if this continues and if other supply side headaches ease the Fed will have room to take their foot off the brakes in the second half of 2022.”
Investors will be hoping for any sign of relief on the consumer inflation front Wednesday when the Labor Department releases April’s Consumer Price Index report. Economists are forecasting a gain of 0.4%, and a 6% jump on a year-over-year basis, FactSet says. In that instance CPI beat estimates, up 1.2% in March from February, up 12-months 8.5%.
Proxy season will go on next week, with shareholder meetings for ConocoPhillips (COP) and Phillips 66 (PSX) and votes on resolutions to set targets for greenhouse gas emissions.
Similar resolutions were passed by majorities of shareholders at last year’s meetings, but the companies did not implement them.
Events planned for the week ahead include:
- Monday: BioNTech (BNTX) earnings.
- Tuesday: SoFi Technologies (SOFI) earnings. ConocoPhillips The oil and gas company held its annual meeting. Fortinet (FTNT) and Shell (SHEL) Investor Days.
- Wednesday: Consumer Price Index report for April. Walt Disney(DIS), Occidental Petroleum(OXY), Beyond Meat(BYND) and Roblox(RBLX)earnings. Phillips 66 annual meeting.
- Thursday: Fastly (FSLY) investor day;
For the week ending May 6:
- The U.S. Market Index was down 0.57%.
- The energy sector rose the most at 9.57%.
- Real estate fell 3.65% and consumer cyclical 2.97%, making them the lagging sectors.
- Yields on the U.S. 10-year Treasury climbed to 3.13% from 2.89%.
- Oil prices were up $5.08 to $109.77 a barrel.
Of the 868 U.S.-listed companies that publish data on, 363, or 42%, traded higher and 505, or 58%, fell.
What stocks are up?
The top five companies on the week were Shoals Technologies (SHLS), Livent (LTHM), Albemarle (ALB), Stem (STEM), and Devon Energy (DVN).
Solar energy company Sunrun (RUN) surged after beating Wall Street revenue estimates by 24%, per FactSet. The rally spread to companies that produce renewable equipment and storage solutions, like Shoals Technologies and Stem, which also finished higher.
Several oil companies advanced after they reported better-than-expected earnings and prices in the market increased. Devon Energy, Pioneer Natural Resources (PXD) and Coterra Energy (CTRA) moved up. Occidental Petroleum rose on the eve of its earnings report next week.
What stocks are down?
The weakest companies included Lyft (LYFT), Guardant Health (GH), Under Armour (UA), Hain Celestial (HAIN) and Expedia (EXPE).
Lyft fell after the company cut its forecasts for revenue and net income for the second quarter. Peer Uber (UBER), which posted solid earnings results in Q1, also traded lower.
