Wall Street bloodbath; Why the market fell yesterday
On Thursday, May 5, US equity indices took a nosedive as a series of earnings reports coupled with Federal Reserve (Fed) policy dragged markets lower.
The Nasdaq led the decline dropping 5%, the first drop of that percentage since mid-2020 at the start of the Covid pandemic.
On Wednesday, May 4, the central bank raised interest rates by 50 basis points, the first increase of this magnitude since 2000. Stocks rallied as they digested Fed policy measures and higher interest rates. interest as Fed Chairman Jerome Powell said that future rate hikes will not be greater.
In addition, the central bank has indicated that it will begin to reduce its balance sheet by $9 trillion.
As traders digested the news from the Fed and the possible implications it could have on the markets, stocks reversed late in the day on Wednesday. Revenue reports from online retailers like Etsy (NASDAQ: ETSY) and eBay (NASDAQ:EBAY).
These revenues suggest that online shopping has been slowing since the peak of the pandemic, highlighted by Shopify (NYSE: SHOP) which, combined with its low revenues, caused its stock to fall by more than 14%. In turn, the decline in online shopping has raised concerns about the state of the consumer with rising inflation and policy tightening.
Thursday’s session saw the S&P 500 join the Nasdaq’s 5% decline dropping 3.6% and the Dow Jones ended down 3.1% dropping more than 1,000 points. This sell-off saw all 11 S&P sectors finish in the red, with Consumer Discretionary losing 6% as the worst performing sector.
According to Compound Capital Advisors founder and CEO Charlie Bilello, the S&P 500 was down 13% in the first 86 trading days of 2022, including the fourth-worst start to the year in history.
“While the Fed likely won’t admit it, we’re confident they will be looking closely at the impact on long-term inflation expectations after the FOMC,” ING said. “Currently in the 2.8% zone, the 10-year inflation expectation is roughly tolerable below a handful of 3%. The Fed would like it to stay that way.
It seems that no sector is immune to the decline in equities, as all sectors are plunging. For patient investors, a wait-and-see approach might be the best option as some companies are discounted.
The decline should not last forever, companies with strong balance sheets and improving earnings should do well in the long term. Investors who can handle the volatility should do well if they stick to their investment strategies.
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