3 Things…

1. Trends/Bonds: S&P500 13% Below its 200 with a downtrend, NASDAQ  21.4% Below its 200 with a strong downtrend; 11% of the NASDAQ and 28% of the S&P500 are above their 200-Days; 13% and 15%, respectively, are above their 50-Days; Bulls26:Bears50; VIX 29; [1]

    

   U.S. Treasury prices slipped on Friday and yields jumped as investors sold out of government bonds and looked to move back into stock markets. The yield on the benchmark 10-year Treasury note fell 2 basis points to 2.83%. The yield on the 30-year Treasury bond moved 4 basis points lower to 3.03%. Yields move inversely to prices and 1 basis point is equal to 0.01%. The 10-year yield started the week at about 2.90%. [2]

2. Sectors: Best 1-month sectors: Energy (+0.88%), Staples (-7.31%), Utilities (-8.64%), Healthcare (-9.77%), Materials (-7.20%); Crypto/Bitcoin again below $30,000 Friday; [3]
3. Structured Note Values
   1. KRE Pricing Value 2/28/22: 73.49, Current 59.19-Delta -19.46%
   2. XLE/XOP Lowest, XLE Pricing Value 3/25/22: 78.75, Current: 81.22, Delta +3.1%; XOP Observation Value 3/25/22: 138.60, Current Value: 135.03-Delta -2.57%
   3. Lower of GDX/GDXJ; GDX Pricing Value: 4/29/22 34.99, Current: 31.89 Delta -8.86%; GDXJ Pricing Value 4/29/22: 42.95, Current: 39.20 Delta -8.73% [4]

This Week’s Quotable

“[Wednesday was] a new phase as opposed to just a continuation of what we’ve seen. Initially this was a sell-off based on interest rate fears and based on financial conditions tightening. [Now], it has all the elements of also being a growth scare. Just look at the bond market. Unlike the previous sell-off, bond prices are going up, and that just suggests to me that this is a new phase of the sell-off.

There will be trading opportunities, but [not in the near term, as] this is a market that still is very vulnerable. Growth is slowing in the major economies. … It’s a different global macro environment and inflation is going to remain a problem for a while. [Cash or cash-equivalent assets are] still losing money in real terms [due to inflation], but [that]’s a good place to shelter until this growth storm passes.” –former PIMCO chief executive and current Allianz chief economic advisor Mohamed El-Erian, on CNBC’s “Closing Bell” on Wednesday. [5]

Recent Highlights

• Existing Home Sales declined 2.4% (05/19)
• Initial Claims increased by 21,000 (05/19)
• Crude Inventories decreased by 3.4 million bpd (05/18)
• Building Permits decreased 3.2% (05/18)

In the Markets

U.S. stocks gave up early gains in a volatile trading session to end lower on Thursday, as investors feared that the Fed’s aggressive stance to hike rates in order to fight surging inflation could push the economy into recession. This saw the S&P 500 inching closer to a bear market. All the three major indexes ended in negative territory.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) slid 0.8% or 236.94 points to finish at 31,253.13 points. The blue-chip index at one point rose more than 300 points only to give up all its gains and finish in the red.

The S&P 500 fell 0.6% or 22.89 points to close at 3,900.79 points, after swinging between small gains and losses almost throughout the day. Consumer staples, industrials and tech stocks were the biggest losers.  

The Consumer Staples Select Sector SPDR (XLP) declined 1.8%, while the Industrials Select Sector SPDR (XLI) fell 0.9%. The Technology Select Sector SPDR (XLK) declined 1.1%. Eight of the 11 sectors of the benchmark index ended in negative territory.

The tech-heavy Nasdaq slipped 0.3% or 29.66 points to end at 11,388.50 points.

The fear-gauge CBOE Volatility Index (VIX) was down 5.20% to 29.35. Advancers outnumbered decliners on the NYSE by a 1.15-to-1 ratio. On Nasdaq, a 1.31-to-1 ratio favored advancing issues. A total of 12.7 billion shares were traded on Thursday, lower than the last 20-session average of 13.4 billion.

Concerns Over Economic Growth Worry Investors

The S&P 500 inched closer to a bear market, while the Dow and the Nasdaq gave up all their gains on Thursday in a volatile trading session. Stocks have been suffering for a while now, with all the major indexes closing in the red for the past few weeks.

This week too seems to be no different. On Thursday, all the major indexes extended their weekly losses. The S&P 500 and Nasdaq have now lost over 3% this week, while the Dow is down 2.9%. Investors continued to dump equities on Thursday on fears that the Fed’s move toward steep rate hikes to combat surging inflation could end up pushing the economy into recession.

High-growth stocks were once again the biggest casualties Shares of Cisco Systems, Inc. (CSCO) plummeted 13.7% after the company missed revenue estimates in the last reported quarter. Cisco Systems reported third-quarter fiscal 2022 revenues of $12.84 billion. Shares of Apple Inc. (AAPL) also declined 2.5%, while shares of Broadcom Inc. (AVGO) fell 4.7%.

Rising rates have been worrying investors for quite some time now, which has been taking a toll on stocks. Besides, the ongoing Russia-Ukraine war along with a slowdown in China’s economy has further added to their worries. Moreover, several major retailers reporting quarterly results have cited rising fuel costs and a supply chain crisis as reasons behind shrinking profits. These have been further weighing on stocks. [6]

Sources: [1][3][4] Stockcharts.com; [2] CNBC.com; [5] The sell-off has entered ‘a new phase,’ Allianz’s El-Erian says (cnbc.com); [6] Zacks Professional Services, “Today’s Key Market and Economic News” for Friday May 20, 2022;