The big picture today
Asia-Pacific equity indices ended today’s session lower in all areas except China’s Shanghai Composite, which gained 0.36%. The sentiment of yesterday’s decline in US markets was felt halfway around the world as those markets moved in sympathy. Korea’s KOSPI fell 1.28%, Australia’s ASX All Ordinaries fell 1.66%, Taiwan’s TAIEX fell 1.70% and Japan’s Nikkei lost 1.89%. Leading the pack, Hong Kong’s Hang Seng and India’s Sensex closed down 2.54% and 2.61%, respectively. At midday, European stock indices are down in all areas except Portugal, the Czech Republic and Russia. US futures are pointing to a crude market open later this morning, although these levels, while still low, showed some strength even as we prepared today’s note.
The stock market has been hit hard in recent days due to renewed concerns over earnings and profit margins and disappointing forecasts for Cisco (CSCO) will not improve the mood of the market. As we mentioned yesterday, there are times when the market tears everything down and then sorts through the rubble to find the solid companies that remain. Clearly, profit concerns were the catalyst that triggered this current decline, and it looks like there are more in store.
With the Russian-Ukrainian war and related inflationary pressures poised to continue, and the question of how aggressive the Fed might have to get to see a significant drop in inflationary data, uncertainties remain even as we approach the beginning of the reopening of China in the coming weeks. Even that, however, risks showing the same manufacturing, supply chain and shipping issues we saw last year as the United States and the Eurozone began to emerge from the pandemic. These challenges likely mean that the impact of the lockdowns in China won’t fully subside until later in the second half of this year, and that’s another reason why investors should prepare for lower earnings expectations from the 2H 2022. Until those revisions begin to subside, we’re likely to face a tough stock market, and that will lead at least some to say that the old Wall Street adage that is “Sell in May and walk away rings true this year.
There is no reliable international economic data from earlier today and the only such data will be available later today at 7:30 p.m. when Japan’s April CPI figures are released. The April core CPI consensus calls for an increase to 2.5% yoy from 1.2% in March.
Today brings the usual complement to Thursday’s weekly economic reports which are Initial and Continuing Unemployment Claims as well as EIA Natural Gas Inventories.
At 8:30 a.m. ET, the May reading of the Philadelphia Fed Manufacturing Index will be released, and it is expected to fall May to a reading of 16 from 17.6 in April.
At 10 a.m. ET, investors focused on the housing market will want to check out the April Existing Home Sales report. The consensus forecast calls for a decline to 5.65 million on a seasonally adjusted annual rate from 5.77 million in March. We will also be watching the inventory of unsold existing homes, which increased to 950,000 at the March release and equates to about 2 months of sales.
Fresh concerns over earnings and profit margins following quarterly results from Target (TGT) yesterday which echoed the concerns of Walmart (WMT) report on quarterly results the day before. The Nasdaq Composite and the S&P 500 were the hardest hit, falling 4.73% and 4.04% respectively. The Dow Jones Industrial Average was down 3.57% and the Russell 2000 closed down 3.56%. The S&P 500 Consumer Discretionary and Consumer Staples sectors fell 6.59% and 6.48%, respectively, while the Information Technology sector fell 4.67%.
Including yesterday’s moves, here’s how the major market indicators stack up year-to-date:
- Dow Jones Industrial Average: -13.34%
- S&P 500: -17.68%
- Nasdaq compound: -27.02%
- Russell 2000: -21.90%
- Bitcoin (USD-BTC): 39.49%
- Ether (ETH-USD): 48.70%
Stocks to Watch
Prior to the start of trading for stocks listed in the United States, Advanced Drainage Systems (WMS), BJ’s Wholesale (BJ), Canada Goose (GOOS), Kohl’s (KSS), Lightspeed (LSPD), and Children’s Square (PLCE) are supposed to publish their quarterly results.
Shares of Cisco (CSCO) were under pressure following a disappointing forecast after announcing a mixed sack for its April term. While EPS for its April quarter was $0.01 better than expected, the company’s revenue was essentially flat year-over-year at $12.84 billion, well below consensus of $13.34 billion. The company shared that while it sees solid demand for its technologies, as evidenced by its $15 billion backlog, supply disruptions are expected to continue through its current July quarter and result in a severe shortage of critical components. Cisco cut its July revenue outlook to $12.4-13.0 billion from consensus of $13.87 billion and EPS for the quarter to $0.76-0.84 from consensus of $0.92. Longer term, Cisco sees that the shift to hybrid cloud, 5G, 400 gigabytes, IoT, and hybrid working drives an increased need for next-generation networks, connectivity, and security. The ripple effect of Cisco’s July quarter guidance is weighing on a number of networking companies, including Ciena (CIEN), Juniper Networks (JNPR), Extreme Networks (EXTR), and Nokia (NOK).
Similar to other retailers, Bath and Body Works (BBWI) announced better-than-expected revenue and EPS for the April quarter, but issued a lower guidance for the current quarter and the rest of its fiscal year. The company noted that its updated full-year outlook reflected its decision to accelerate investments in information technology and its customer loyalty program, as well as expected increases in inflationary pressures.
Boeing (BA) and International Airlines Group announced an order for a combined total of 50 737-8-200s and 737-10s, plus 100 options. This completes a commitment IAG made for the 737 at the 2019 Paris Air Show and is subject to IAG shareholder approval.
Blackberry (BB) provided its long-term financial targets as part of its annual analyst summit event yesterday. The company is seeing revenue grow at a compound annual growth rate (CAGR) of 13% over the next 5 years, suggesting that 2027 sales will reach approximately $1.2 billion. Over the same period, the company expects its IoT business to grow at a CAGR of 20%, while its cybersecurity business will grow at a CAGR of 10%.
No new IPOs are expected to start trading this week. Readers who want to dig deeper into the schedule of upcoming IPOs should visit Nasdaq’s Latest and Upcoming IPOs page.
After today’s market close
Applied Materials (AMAT), Deckers Outdoor (DECK), Flower Foods (FLOW), Palo Alto Networks (PAWN), Ross Stores (ROST) and VF Corp. (VFC) are expected to release their latest quarterly results. Investors should be on the lookout for companies that announce their March quarter results in advance. Those interested in learning more about which companies release their reports when head to the Nasdaq earnings calendar.
on the horizon
Friday May 20
- Japan: CPI – April
- Germany: PPI – April
- United Kingdom: Retail sales – April
- Euro zone: Consumer confidence – May
Thought of the day
“You don’t have to start from scratch to do something interesting.” ~Jack Dorsey
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.