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May 20, 2022

News of the Trade

Latest trading, investing, and financial news

Dow up 480 points as S&P 500 fights off slide into bear market

U.S. stocks were bouncing Friday at the end of a volatile week, as investors assessed the scope for further downside as they weighed the Federal Reserve’s ability to get inflation under control without sending the economy into a tailspin.

How are stocks trading?
  • The Dow Jones Industrial Average
    DJIA
    was up 483 points, or 1.5%, to 32,213.

  • The S&P 500
    SPX
    rose 87 points, or 2.2%, to 4,017.

  • The Nasdaq Composite
    COMP
    advanced 367 points, or 3.2%, to 11,737.

On Thursday, the Dow industrials ended with a fall of 0.3%, about 500 points off the session’s low, but notching a sixth day of losses. The S&P 500 slipped 0.1%, while the Nasdaq Composite rose 0.1%. All three indexes remain on track for steep weekly declines, with the Dow and S&P 500 trading at levels last seen in March 2021.

What’s driving the markets?

Some analysts see stocks as due for at least a short-term bounce after recent losses, arguing that selling this week may have reached levels that signaled near-term capitulation. They cautioned, however, that a downtrend may still be firmly in place.

Global equity indexes and U.S. stocks “continued their recovery after the comeback on Wall Street the day before. But as we have seen time and time again, stocks have struggled to sustain any recovery attempts as traders have been quick to take profit on rebounds amid a bearish macro back drop — rising interest rates, low growth and high inflation,” said Fawad Razaqzada, market analyst at City Index and Forex.com, in a note.

In an interview aired late Thursday on National Public Radio’s Marketplace program, Federal Reserve Chairman Jerome Powell warned that the central bank’s ability to tighten policy without sending the economy into a steep downturn wasn’t solely up to policy makers.

“So the question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control,” Powell said.

Powell quibbled with the suggestion that last week he had taken the prospect of a 75 basis point rate rise off the table, emphasizing that he had said, “We weren’t actively considering that.”

But even if equities can manage a win on Friday, all three indexes are headed for sizable weekly losses, led by the Nasdaq, down 6.3% as of Thursday. That would mark the battered tech index’s sixth straight weekly loss, with the Dow industrials set to mark its seventh consecutive weekly loss, off 3.5%.

Down 4.6%, the S&P 500 is also poised to mark a sixth-straight weekly fall, as it also skirts bear market territory, defined as a drop of 20% from a recent peak. Off 18.1% from a Jan. 3 record high, the S&P would only need to close at or below 3,837.24 to enter a bear market.

Read: The S&P 500 is on the brink of a bear market. Here’s the threshold.

It would also mark the first time in over a decade that the index has seen six straight weeks of declines, pointed out a team of Deutsche Bank strategists led by Henry Hill.

“Unlike in April, when the equity declines were triggered by the prospect of a more aggressive Fed tightening cycle and went hand-in-hand with sovereign bond losses, this week’s declines have much more obviously surrounded global growth risks, which you can see in the way that Fed Funds futures are now beginning to take out some of the tightening they’d been pricing in over the year ahead,” said Hill.

The market has endured higher-than-forecast consumer prices this week, as well as continued high producer prices.

Read: Fed tightening comes ‘fraught with volatility’ in the stock market, but this JPMorgan portfolio manager says he isn’t betting on a U.S. recession

U.S. import prices cooled in April after a sharp gain over the previous three months, the Labor Department said Friday. Prices from overseas goods were unchanged after increasing 2.9% in March. Economists polled by the Wall Street Journal had expected a 0.6% gain in import prices in April.

The University of Michigan’s gauge of consumer sentiment fell to 59.1 in May from a final April reading of 65.2, its lowest level in more than 10 years. Economists were expecting a print of 64.1.

The drop takes the confidence gauge “deeper into recessionary territory. But confidence has been a poor guide to consumption growth in recent years, so we would not read too much into that signal,” said Michael Pearce, senior U.S. economist at Capital Economics, in a note.

Some recovery in battered cryptocurrency markets on Friday may also be helping sentiment overall, said analysts.

Bitcoin
BTCUSD
was trading above $30,000, after staging a slight recovery from a roughly 16-month low hit Thursday of $25,400, amid a collapse of some stablecoins, which are supposed to be pegged to the dollar.

Read: Why is UST, LUNA crashing? Collapse of a once $40 billion cryptocurrency, explained

Twitter Inc.
TWTR
shares fell 910% after Elon Musk tweeted that the deal to buy the social-media company was “temporarily on hold.” Musk, the chief executive of electric vehicle maker Tesla Inc.
TSLA
said the hold on the deal is “pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users.” Twitter shares trimmed their loss in premarket action after Musk, in a subsequent tweet, said he was “Still committed to the acquisition.”

Tesla shares rose 5.6%.

Which companies are in focus?
  • Shares of Robinhood Markets Inc.
    HOOD
    were up 23% after a filing late Thursday revealed that Sam Bankman-Fried, the chief executive of cryptocurrency exchange FTX Trading, had taken a 7.6% stake in the popular trading platform.

How are other assets trading?
  • Treasury yields were on the rise. The yield on the 10-year note
    BX:TMUBMUSD10Y
    rose 9 basis points to 2.904%. Yields and debt prices move opposite each other.

  • Oil futures rose, with the U.S. benchmark
    CL
    up 2.6% near $109 a barrel. Gold futures 
    GC00
    fell 1.3% toward $1,800 an ounce.

  • The Stoxx Europe 600 
    XX:SXXP
    rose 1.5%, while London’s FTSE 100 UK:UKX gained 1.9%.

  • The Shanghai Composite CN:SHCOMP rose 0.9%, while the Hang Seng Index HK:HSI jumped 2.3% and Japan’s Nikkei 225 JP:NIK surged 2.6%.