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Weekly Market Update for April 29, 2022

by Jared Plotz

It was a mixed week which ended down. A Monday rally as treasury yields pared back gave way to mid-week softness. Thursday showed reprieve on the back of strong reports by Facebook and Paypal, but markets ultimately succumbed to negative sentiment on Friday with Amazon’s disappointing earnings report. The S&P 500 ended the week down 3.3%, the Nasdaq down 3.9%, and the 10-Yr up one basis point.

Earnings reports have been broadly positive but not quite as strong as prior quarters. Visa reported a “beat and raise” as cross-border volumes recovered faster than expected and the company reported no major volume impacts from recent market headwinds (inflation, supply chain, Ukraine war). Google shares declined after showing softening growth at its YouTube property. Facebook revenue missed expectations, as did guidance for Q2; however, healthy engagement metrics, reduced operating expenses and a plan to improve profitability buoyed investors’ spirits. Amazon experienced its biggest one-day drop since 2006 after reporting weaker operating margins, soft Q2 revenue guidance, and a big impairment on its investment in electric-vehicle maker Rivian.

First quarter real (inflation-adjusted) GDP contracted at a 1.4% annualized pace, the first quarterly decline since Q2-2020. This does not, however, give an honest picture of the current economy. Foreign imports surged and businesses slowed inventory accumulation after building up in prior quarters. Combined these posed a four percentage-point headwind to growth. Add in a 3% decline in government spending, and the healthy 4% expansion in private domestic demand became overshadowed. Consumer spending grew over 4%, residential investment by 2%, and looking forward the economy is expected to rebound to over 3% growth in Q2 and Q3. A recession is unlikely in 2022.

Next week brings earnings reports from some leisure travel companies – one spot in the economy seeing particularly robust demand recently – as well as more financial technology companies (SQ, SHOP, FIS). On Wednesday, the Federal Reserve’s FOMC will meet to determine the size of a May rate hike. The most likely decision is to raise the Federal Funds rate by 50 basis points. Then we will wrap the week up on Friday with the April employment report. It is forecast that nearly 400,000 jobs were added during this past month.

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