MARKET UPDATES

In the US equity markets ended the week lower, on concerns about the Federal Reserve’s notably more hawkish stance and about the impact of inflation on consumer spending, and thereby corporate earnings and margin outlook.

The S&P 500 fell -2.77% on the day, breaking down below the 50 day moving average. The technology-heavy Nasdaq 100 Index fell 2.7%, and the blue-chip Dow Jones Industrial Average slid 2.8%, its largest decline since 28 October 2020.

US trading on Friday saw all sectors down, but defensives such as staples, utilities and real estate were fell least, while materials, healthcare and communications services fell the most, some of it due to earnings.

Earnings earlier in the week included Tesla, which has a market value of more than $1 trillion. The electric vehicle maker reported record first-quarter earnings on Thursday, and analysts praised its solid demand and confident outlook in the face of supply-chain issues.

Earnings from airlines also showed consumers are confident and still spending, with United Airlines Chief Executive Officer Scott Kirby saying Thursday that “the demand environment is the strongest it’s been in my 30 years in the industry.” Yet, some analysts remained cautious.

Brent oil fell -2.4% with Bloomberg reporting that Chinese oil demand has fallen to the lowest levels since the early stages of the pandemic, with April fuel demand expected to fall -20% year-on-year or 1.2m barrels per day, 9% of total Chinese daily oil demand.

In positive news for the European Union and a revitalised NATO, President Emmanuel Macron defeated Marine Le Pen in the second round of the French presidential election, making him the first incumbent to do so in 20 years.

In the Ukraine conflict there are reports that Putin has lost interest in peace talks following the humiliating sinking of the Moskva in the Black Sea, and that he is focusing on annexing as much Ukrainian territory as possible. Meanwhile the US has increased the nature of its military support for Ukraine, sending offensive weaponry such as heavy artillery, helicopters, armoured personnel carriers and attack drones.

Today European equity markets are under pressure with basic resources, energy and luxury the biggest decliners. Defensives like utilities and telecom are faring a little better, although indices are down around -2% after broad weakness in Asia overnight.

Sectors in Focus

  • Clothing retailers were broadly lower after Gap lowered its 1Q net sales growth guidance due to “macro-economic dynamics”
  • Oil service stocks closed broadly higher after Schlumberger raised its dividend by 40% after reporting 1Q earnings per share that exceeded analysts’ estimates
  • Verizon Communications closed down 5.90% after the wireless provider trimmed its full-year sales growth forecast due to inflation and competition
  • American Express closed 1.30% lower the after credit card issuer reported a larger-than-expected increase in expenses in 1Q

Markets

  • S&P 500 Index down 2.80%
  • Dow Jones Industrial Average down 2.80%
  • NASDAQ Composite Index down 2.50%
  • Russell 2000 Index down 2.60%
  • 11 of 11 main S&P 500 sectors closed lower
  • Materials down 3.70%
  • Health care down 3.60%
  • US Generic Govt 10-Yr down 0.30%
  • Bloomberg Dollar Spot Index (Rebased Version) up 0.4%

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