Against a backdrop of turbulent markets and an uncertain economic outlook, business elites from around the world will gather in the mountains of Davos, Switzerland this week.
For the first time in more than two years, CEOs, politicians and billionaires are coming together at the World Economic Forum after an epidemic-induced break. Concerns over Russia’s war in Ukraine, the COVID-19 epidemic, and economic woes will be among the main topics discussed, as the world’s top leaders face the most uncertain prospects for global cooperation over the years.
A top issue for many Davos participants will undoubtedly be the recent volatility in the financial markets, as the S&P 500 has just completed its seventh consecutive week of losses, the longest trend since 2001. The benchmark index fell seven weeks in a row, only twice since 1980, according to market data.
The S&P 500 moved into beer market territory – defined as a 20% drop from the recent high – intraday on Friday, but a late afternoon rally prevented a close below this line. In the coming weeks, traders will keep an eye on 3,837.24 and below this level will ensure the first beer market of the S&P 500 after 2020.
On the economic front, the minutes of the Federal Reserve’s May 4 meeting are set for release on Wednesday, and are expected to give investors a better picture of where policymakers see interest rates move in 2022. Uncertainty about the pace and extent of the Federal Reserve’s rate hike has weighed on the equity market, with investors expressing concern about the economic downturn as inflation plunges into the pockets of the economy.
A leak of U.S. economic data will also be closely watched by traders, especially the second estimate of GDP growth in the first quarter on Thursday. The country’s gross domestic product – a broad measure of economic activity – shrunk by 1.4% year-on-year between January and March as long-term supply chain weight gains increased due to imbalances, inflation, and war in Eastern Europe. According to Bloomberg estimates, the updated estimate is expected to show a revised contraction of 1.3%.
Elsewhere on the economic calendar, the Bureau of Economic Analysis will publish a new reed on its monthly personal spending (PCE). The PCE, the Federal Reserve’s preferred measure of inflation, will give the market a more recent look at how fast prices are rising across the country. According to Bloomberg data, economists registered a monthly climb of 0.2% in April, expecting the PCE to decline slightly, down from 0.9% last month. Readings will still mark the 17th consecutive monthly growth and mark a 6.2% increase in the index over last year.
Corporate earnings are also in focus after big box retailers Walmart (WMT) and Target (TGT) intimidated investors last week, as retailers cut forecasts and tell investors that their inventory channels have swelled. Target has erased a quarter of its market value, and Walmart’s shares have fallen 20% – the biggest fall since the 1987 crash. Companies also dragged the overall retail sector with them – the SPDR S&P Retail ETF (XRT) fell more than 9% last week.
Brian Jacobsen, senior investment strategist at Allspring Global Investments, said: “This past week we had to add another ‘C’ by narrowing the profit margins from the big retailers.”
“The rise in epidemic-induced profits has been experienced by many companies, but that return may be greater than the original idea,” Jacobsen noted. “Businesses need to deal with higher input costs, consumers shrinking by higher prices, and changes in spending patterns.”
Reports are coming in from more retailers next week, including results from names including Messi’s (M), Dix Sporting Goods (DKS), and Ulta Beauty (ULTA). The results could give investors more clarity about the state of U.S. consumers and the resilience of corporate profits in the face of continued inflation.
“Unfortunately there is no safe haven,” Eva Ados, chief operating officer of ER Shares, told Yahoo Finance Live. “When we look at consumer discretion and the news coming out of the staples, it shows that companies have fought regardless of their size, and ironically, these are the sectors – major and consumer discretionary – that are seen as safe havens in a bad economic market.”
An insufficient income season is coming to an end. According to FactSet, the S&P 500 companies have seen the biggest negative price reaction since the first quarter results to positive earnings per share since 2011.
As of Friday, 95% of companies in the S&P 500 reported earnings for the first quarter, with 77% reflecting actual earnings per share above the average EPS estimate. However, companies that have expressed surprise at positive earnings have, according to the fact set, lost 0.5% of their average value two days before and two days before. This percentage reduction is less than the five-year average price increase of 0.8% in this same window for companies reporting the surprise of positive earnings.
Monday: Chicago Fed National Activity Index, April (0.44 in the previous month)
Tuesday: S&P Global US Manufacturing PMI, May Preliminary (57.8 expected, 59.2 in the previous month); S&P Global US Services PMI, early May (55.5 expected, 55.6 in the previous month); S&P Global US Composite PMI, May Preliminary (55.5 expected, 56.0 in the previous month); Richmond Fed Manufacturing Index, May (expected 12, previous month 14); New home sales, April (expected 750,000, previous month 763,000); New home sales, month-on-month, April (-1.7% in previous month, -8.6%)
Wednesday: MBA mortgage application, the week ending May 20 (-11.0% in the previous week); Durable product orders, early April (0.6% expected, 1.1% in the previous month); Sustainable without transportation, early April (0.7% expected, 1.4% in previous month); Non-defense capital product orders, excluding aircraft, early April (0.5% expected, 1.3% in the previous month) Shipments of non-defense capital products, excluding aircraft, early April (0.5% expected, 0.4% previous month); FOMC meeting minutes, 4 May
Thursday: GDP annual, quarter-over-quarter, 1Q sec (-1.3% expected, -1.4% earlier); Personal costs, quarter-over-quarter, 1Q sec (2.8% expected, 2.7% earlier); GDP Price Index, quarter-over-quarter, 1Q sec (8.0% expected, 8.0% earlier); Core PCE, quarter-over-quarter, 1Q sec (5.2% expected, 5.2% earlier); Initial Unemployment Claims, Week ending May 21 (210,000 expected, 218,000 in previous week); Continued claims, the week ending May 14 (expected 1.310 million, 1.317 million in the previous week); Pending home sales, month-on-month, April (-1.9% expected, previous month -1.2%); Pending Home Sales NSA, year after year, April (-8.9% in previous month); Kansas City Fed Manufacturing Index, May (expected 20, previous month 25)
Friday: Balance of forward merchandise trade, April (revised to $ 127.1 billion – expected, 114.8 billion, – $ 125.3 billion the previous month); Wholesale inventory, month-over-month, early April (2.0% expected, 2.3% in previous month), personal income, month-over-month, April (0.5% expected, 0.5% in previous month); Personal spending, month-on-month, April (0.6% expected, 1.1% in the previous month); Actual personal spending, month-over-month, April (expected 0.5%, previous month 0.2%); Retail inventory, month-over-month, April (2.0% in the previous month); PCE deflator, month-over-month, April (expected 0.2%, previous month 0.9%); PCE deflator, year after year, April (6.2% expected, 6.6% in the previous month); PCE Core Deflator, month-over-month, April (expected 0.3%, previous month 0.3%); PCE core deflator, year after year, April (expected 4.9%, 5.2% in the previous month); University of Michigan Sentiment, May Final (59.1 expected, previous month 59.1); Current status of University of Michigan, May Final (63.6 in previous month); University of Michigan Expectations, May Final (56.3 in previous month); University of Michigan 1-Year Inflation, May Final (5.4% in the previous month); University of Michigan 5-10-Year Inflation, May Final (3.0% in the previous month)
Before the market opens: There are no significant reports scheduled for release.
After the market closes: Zoom Video Communications (ZM), Advanced Auto Parts (AAP), Nordson (NDSN)
Before the market opened: Autozone (AZO), Best Buy (BBY), Abercrombie & Fitch (ANF), Ralph Lauren (RL), Petco (WOOF)
After the market closed: Nordstrom (JWN), Agilent Technologies (A), Toll Brothers (TOL)
Before the market opened: Dick’s Sporting Goods (DKS), Express (XPR), Bank of Montreal (BMO)
After the market closes: Nvidia (NDA), Box (Box), Nutanix (NTNX)
Before market: Macy’s (M), Dollar Tree (DLTR), Dollar General (DG), Ulta Beauty (ULTA), Lions Gate (LGF), VMware (VMW), Alibaba (BABA), Burlington Stores (BURL), Jack in the Box (Jack), Buckle (BKE)
After the market shutdown: COST, DELL Technologies, GPS, Autodesk (ADSK), Workday (WDAY), Sumo Logic (SUMO), American Eagle Outfitters (AEO).
Before the market opened: Big Lots (BIG), Pindudo (PDD)
After the market closes: There are no significant reports scheduled for release.
Alexandra Semenova is a reporter for Yahoo Finance. Follow him on Twitter Alexandrandnik
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