What’s In Store for the S&P 500 This Week?
After a brutal month in April,
equity investors would expect the markets to stabilize soon.
However, the month of May will witness several major events which
could drive volatility higher across asset classes.
All eyes will be on the policy
meeting of the Federal Reserve which will take place on May 3 and
May 4. Experts believe the central bank will increase interest
rates by 50 basis points which will be the first hike of over 25
basis points in the last 22 years. Additionally, the Fed is also
likely to roll off assets from its balance sheet, which indicate
quantitative tightening measures will gain pace.
In an event hosted by the
International Monetary Fund last month, Jerome Powell, the Chairman
of the Fed stated, “We really are committed to using our tools to
get 2% inflation back. It is appropriate in my view to be moving a
little more quickly. And I also think there is something in the
idea of front-end loading … that points to the direction of 50
basis points being on the table.”
The Fed’s preferred inflation
indicator, which is the personal consumptions expenditure surged
5.2% year over year for the month of March 2022.
April jobs report will release on Friday
The Labor Department is scheduled
to report the monthly jobs report for April on Friday which is
likely to impact the central banks policies going forward. However,
the Federal Reserve might be open to trade lower GDP growth and a
small uptick in unemployment levels to offset raging inflation
Economists forecast non-farm
payrolls to rise by 391,000 in April compared to an increase of
431,000 in March, which will decrease unemployment rates to 3.5%.
Further, another closely watched indicator is hourly earnings which
is expected to rise by 5.5% year over year in April. It will be
interesting to see if higher wages are driving prices northwards
which in turn results in unsustainable inflation rates.
Earnings will drive S&P 500 in May
in the last week. While
Meta Platforms (NASDAQ:
MSFT) managed to beat
Wall Street consensus, heavyweights such as
Apple (NASDAQ: AAPL), Amazon (NASDAQ:
Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL)
disappointed investors resulting in a broader market
Apple stated supply chain
disruptions is likely to impact revenue between $4 billion and $8
billion in the June quarter. Comparatively, Amazon’s negative
bottom-line and tepid revenue growth drove the stock lower by 14%
Right now, indices such as the
S&P 500, Nasdaq Composite and the Dow Jones are trading
13.5%, 23% and 9.94% respectively below all-time highs. In addition
to interest rate hikes, surging inflation and supply chain issues,
corporate earnings will also be impacted by higher commodity prices
and geopolitical tensions.
Leading investment firm, the Bank
to load up on consumer staple stocks
as there is 33% chance that the U.S. economy will slide into
recession. It also trimmed its S&P 500 target for 2022 to
4,500 from 4,600 as the flagship index re-entered correction
territory last week.
Bank of America also emphasized
that the average peak-to-trough decline for the S&P 500
stood at 32% during recessions which suggests the downside risk
remains significant if recession fears come true.
The U.S. GDP fell by 1.4% in Q1
of 2022 which was unexpected. Bank of America also claimed
recession risks are low for now but remain elevated for the next
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