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S&P 500 Flirts with Bear Market Territory, as Inflation and Earnings Continue to Weigh on Markets

Weekly Update – May 20, 2022

  • The S&P 500 index fell 3% last week, reaching lows not seen since March 2021 and putting it on the brink of bear-market territory, as disappointing quarterly earnings from retailers added to investors’ concerns about the impacts of inflation on the economy.
  • The market benchmark ended the week at 3,901.36, down from last Friday’s closing level of 4,023.89. It is now down 5.6% for the month of May and has declined 18% in the year to date.
  • This marks the S&P 500’s seventh consecutive week in the red. The index has only had five losing streaks that long since 1928, and hasn’t had one since an eight-week slide that ended in March 2001, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
  • Friday, the index flirted with bear-market territory as it moved below 3,837.24, which would mark a 20% drop from its Jan. 3 closing high of 4,796.56. The index hit 3,810.32 at its lowest intraday level Friday. However, because the S&P 500 didn’t close at or below 3,837.24, it is still considered in a bull market for now.
  • The week’s decline came as the latest quarterly reports from retailers including Walmart (WMT) and Target (TGT) showed negative impacts from inflation digging into earnings results.
  • Walmart lowered its fiscal 2023 profit outlook after reporting weaker-than-expected fiscal Q1 adjusted earnings per share amid supply chain disruptions, increased costs and persistent inflationary pressures, mainly on food and fuel.
  • Target, meanwhile, reported Q1 adjusted earnings per share below analysts’ expectations amid what CEO Brian Cornell described as “unexpectedly high costs.”
  • Most sectors were in the red for the week. Consumer stocks had the largest declines of the week, with consumer staples down 8.6% and consumer discretionary down 7.4%. Technology fell 3.8%, industrials shed 3.7% and communication services lost 3%. Other decliners included real estate, financials and materials.
  • Three sectors posted gains last week but the gains were slight. Energy rose 1.1%, health care edged up 0.9% and utilities eked out a 0.4% increase.
  • In consumer staples, Walmart dropped 19% last week. Costco Wholesale (COST) also was hit hard, shedding 16% in sympathy with Walmart.
  • In consumer discretionary, Target slid 29% while other decliners in the sector included Bath & Body Works (BBWI), whose shares fell 24% as the retailer of soaps and fragrances reported adjusted fiscal Q1 earnings per share and revenue above analysts’ expectations but forecast Q2 earnings below the Street view and cut its profit guidance for the fiscal year.
  • The energy sector’s advance came as crude oil and natural gas prices rose. Among the gainers, Pioneer Natural Resources (PXD) and Devon Energy (DVN) added 1.8% each.
  • Looking ahead, inflation data will be in focus next week as April inflation figures are due to be released on Friday. Next week will also feature housing data, with April new home sales due Tuesday and April pending home sales due Thursday. Other data will include April durable goods orders on Wednesday and revised Q1 gross domestic product on Thursday.
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