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Stocks headed lower in an exceptionally choppy session as market participants returned form an extended holiday weekend and looked ahead to a busy week of corporate earning reports. Major companies, including United Airlines (UAL), American Express (AXP), Johnson and Johnson (JNJ), Tesla (TSLA), and Netflix (NFLX), among others, are set to report later this week. 

These will come on the heels of last week’s mixed big bank earnings, with a number of firms including Morgan Stanley (MS), JPMorgan (JPM), Wells Fargo (WFC), and Goldman Sachs mostly beating estimates while warning of near-term uncertainty due to inflation and the ongoing Russia-Ukraine crisis.

Markets Today

  • S&P 500 (SPY): +0.05%
  • Nasdaq (QQQ): +0.16%
  • Dow Jones (DIA): -0.05%
  • Russell 2000 (IWM): -0.67%
  • Volatility Index (VIX): +0.70%
  • NVIDIA (NVDA): +2.47%
  • DiDi Global (DIDI): -18.50%
  • Twitter (TWTR): +7.65%
  • Cloudflare (NET): -5.11%
  • Gamestop (GME): -6.25%
  • Bank of America (BAC): +3.49%
  • Occidental Petroleum (OXY): +3.45%

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Last week, the Bureau of Labor Statistics released the consumer price index (CPI),  rose 8.5% in March compared to the same month last year. The figure marks the fastest rise since December 1981 and follows a 7.9% annual increase in February. Heading into the report, consensus economists were looking for an 8.4% jump for March, according to Bloomberg data.

Excluding food and energy, so-called core CPI increased 6.5% on a 12-month basis, in line with the expectation. However, there were signs that core inflation appeared to be ebbing, as it rose just 0.3% for the month, less than the 0.5% estimate. That in turn sparked some hope that inflation overall was easing and that March might represent the peak.

Some of the biggest contributors to the latest increase in inflation were food, shelter and gasoline, according to the BLS. In fact, the index tracking gas prices surged to rise 18.3% month-on-month in March, comprising more than half of the total monthly increase in CPI. In February, gasoline had posted a 6.6% monthly increase.

So far, about 7% of companies in the S&P 500 have reported actual Q1 results and 77% of these have topped Wall Street’s earnings per share (EPS) estimates, matching the five-year average percentage of beats, according to data from FactSet. Heading into this week, the estimated earnings growth rate for the S&P 500 stood at 5.1%. If maintained, this would mark the lowest earnings growth rate for the index since the fourth quarter of 2020.

However, there is concern that earnings may be weaker this quarter as companies grapple with decades-high inflation, an increasingly restrictive monetary policy environment, and lingering geopolitical challenges stemming from Russia’s war in Ukraine. 

On the other hand, the price of natural gas continued its surge higher to hit the highest level in over 13 years. Russia is a key supplier of natural gas worldwide, meaning their war of Ukraine has caused global disruption in this energy market. 

Highlights

  • Sentiment among U.S. homebuilders dropped to the lowest level in 7 months in April, with rising mortgage rates and lingering supply chain disruptions further weighing on housing market activity. The National Association of Realtors’ April housing market index dropped for a fourth consecutive month to reach 77. In March, the index stood at 79.
  • Bank of America (BAC) surged higher after reporting that revenue surprisingly grew 9% year-over-year, which is especially notable given recent challenges.
  • In response to a tweet about Twitter’s (TWTR) board, former CEO and founder Jack Dorsey said “It’s [the board] consistently been the dysfunction of the company,” Dorsey said.
  • According to a report by Bank of America, TikToks explosive success has materially affected ad revenue for competitors. The report says that TikTok, which is by far the fastest growing social media in the world, will cause a 2.1% decline in ad rev for competitors in 2022. 
  • In addition to weighing on growth, TikTok’s success has forced competitors to adapt their platforms to incorporate short-form video content. Meta Reels, YouTube Shorts and Snap Spotlight are the three biggest examples. A September 2021 survey of U.S. consumers found 48% prefer to watch short-form videos on TikTok followed by 25.3% that prefer YouTube, 20.1% that prefer Instagram and just 1.4% that prefer Snapchat.
  • Cathie Wood’s Ark Investment Management now expects Tesla (TSLA) shares to more than quadruple to $4,600 by 2026. Ambitious to say the least
  • RJ Scaring, CEO of Rivian (RIVN) said regarding the current chip shortage and the potential for future EV material shortages. He said, “Put very simply, all the world’s cell production combined represents well under 10% of what we will need in 10 years. Meaning, 90% to 95% of the supply chain does not exist …Semiconductors are a small appetizer to what we are about to feel on battery cells over the next two decades.”
  • Ant Group, the fintech unit of China’s Alibaba Group, is set to become the majority investor in Singapore-based payments platform 2C2P as part of a partnership, the companies said on Monday.
  • Median pay for top U.S. CEOs rose 31% last year to a record $20 million, a new study found, surging after a slight decline during the COVID-19 pandemic, as companies showered leaders with stock awards and cash bonuses.
  • Deutsche Bank analyst Bryan Kraft maintained his Q1 global subscriber estimate, in line with Netflix (NFLX) 2.5 million subscribers guidance.

“Always bear in mind that your own resolution to success is more important than any other one thing.” –Abraham Lincoln