Market Perspective for April 24, 2022

It was another down week for the major market indexes, with Friday proving to be the worst of the days. The market plunge on Friday was partly due to a few negative earnings reports. Another concern is how aggressive the Federal Reserve is going to be with interest rate hikes.

On Wednesday, Netflix reported that it had lost subscribers for the first time in 10 years. The company expects to lose 2 million more subscribers this quarter. After this news was released, the stock plunged 35 percent on Wednesday, the worst day for the company since 2004.

Netflix closed Friday at $213.85, the lowest price for the company since 2018. Their market capitalization has fallen from over $300 billion last November to the current market cap of $99.2 billion.

Friday’s stock market plunge began when HCA Healthcare reported disappointing quarterly results and weak full-year earnings and revenue guidance, which caused the stock to drop 21.8 percent. They blamed the disappointing profit of $1.3 billion on higher-than-expected labor costs due to inflation.

Other healthcare stocks falling on Friday included Universal Health Services and Intuitive Surgical, each losing 14 percent for the day.

More bad news came from Verizon, which reported losing 36,000 monthly phone subscribers, causing shares to fall 5.6 percent. Shares of Gap dropped at the opening bell after reporting it was slashing its outlook for net sales growth in fiscal 2022, which caused the stock to lose 18 percent on the day.

All in all, earnings reports have not been too bad. Fundstrat reports that with 19 percent of the S&P 500 reporting earnings already, results are beating profit estimates by 6 percent, and revenues are beating the estimates by 3 percent. Energy and material stocks are expected to have the best earnings growth of all sectors.

On Thursday, Federal Reserve Chairman Jerome Powell stated that it is appropriate to move a little more quickly with raising rates to fight the current inflation rate, which is rising at its fastest pace in 40 years.

These comments raised the expectations for a half-point rate increase at the May meeting. It is also believed that this will not be the only 50 basis point increase this year. Some saw this warning from Powell as preparing the markets for the possibility of a 75 basis point increase.

Powell believes that being this aggressive early could make it easier for the Federal Reserve to cut the rate later in the year if the economy were to stumble. After Chairman Powell made these comments, the Dow Jones Industrial Average fell more than 400 points on Thursday, and the NASDAQ dropped 2 percent.

On Friday, the Dow Jones Industrial Average fell almost 1,000 points or 2.82 percent. For the week ending April 22, the Dow lost 1.85 percent, the S&P 500 fell 2.7 percent, and the NASDAQ lost 3.8 percent. This is the fourth straight weekly decline for the Dow and the third consecutive weekly loss for the NASDAQ and S&P 500.

For the year, the DJIA is now down 6.9 percent, the S&P 500 is down 10.4 percent, and the NASDAQ is down 17.9 percent.

The 10-year Treasury yield finished the week at 2.90 percent, which led to another increase in mortgage rates. As of Saturday, the average 30-year fixed-rate mortgage jumped to 5.29 percent, an increase of 22 basis points over the last seven days. The rate of 5.29 percent is the highest mortgage rate since April 2010.

Housing prices continue to make new highs. The median price of an existing home sold in March was $375,300, the highest price ever recorded. This price is an increase of 15 percent over a year ago. The number of homes for sale at the end of March stood at 950,000, a decrease of 9.5 percent over last year. At the current sales price, this is a two-month supply of homes.

As prices and mortgage rates rise, home sales are falling based on closings. Existing home sales dropped 2.7 percent in March, which is 4.5 percent lower than the same period one year ago. These figures are based on closings that occurred in January and February when mortgage rates were just starting to rise, before the sharp increases of March and April.

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