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Following an overnight gap up, stocks nosedived on Thursday as investors continue to digest a steady stream of corporate earnings against a backdrop of elevated inflation, a hawkish Federal Reserve, and geopolitical tensions out of Europe. Moreover, the market digested new commentary by Federal Reserve Chair Jerome Powell which all but confirms a 50 basis point hike in the next meeting, the first such increase in over two decades. Meanwhile, shares of Tesla (TSLA) rose after beating analyst estimates but ultimately failed to prop the market after Netflix’s (NFLX) horror earnings.
- S&P 500 (SPY): -1.50%
- Nasdaq (QQQ): -2.05%
- Dow Jones (DIA): -1.07%
- Russell 2000 (IWM): -2.28%
- Volatility Index (VIX): +12.70%
- Tesla (TSLA): +3.23%
- Amazon (AMZN): -3.74%
- Shopify (SHOP): -8.39%
- Block (SQ): -5.90%
- Meta Platforms (FB): -6.18%
- NVIDIA (NVDA): -6.13%
- Roblox (RBLX): -6.80%
- Alcoa (AA): -16.94%
- Datadog (DDOG): -7.48%
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Stocks dropped and Treasury yields spiked after Federal Reserve Chair Jerome Powell made the case for front-loading the interest rate with a 50 basis point hike in the next meeting in order to address the fastest pace of inflation in forty years. Powell said, ““It is appropriate in my view to be moving a little more quickly to raise interest rates. “I also think there is something to be said for front-end loading any accommodation one thinks is appropriate. … I would say 50 basis points will be on the table for the May meeting.” As a result, expectations for a 50 basis point move are all but confirmed, with CME’s FedWatch tool pointing to a 97.6% likelihood this will happen.
Powell continued to say, “Our goal is to use our tools to get demand and supply back in sync so that inflation moves down, and do so without a slowdown that amounts to a recession. It’s absolutely essential to restore price stability. Without price stability, really economies don’t work without price stability. We need that to have a strong labor market over an extended period of time. We need it for financial stability. So we must do that.”
Moreover, a mixed earnings season has injected uncertainty, with investors worried that companies were not able to bolster profits in a challenging economic environment. With inflation running at the fastest pace in forty years, the Fed tightening, and Russia’s invasion of Ukraine all acting as headwinds, analysts warn that volatility is likely to continue.
Deepak Puri, Chief Investment Officer at Deutsche Bank, said “The big question is whether the earnings can really sustain this kind of a macro backdrop of slower growth and [tighter] Fed policy. It seems certain companies can — historically that’s been the case. What’s different this time is really the trifecta, which is higher costs of capital, quantitative tightening, plus a lack of … a big fiscal stimulus. This time around, I’m not really seeing much fiscal spending coming our way. So it could be one of those times where the market might be a little bit more volatile than what participants expect.”
Yesterday, Tesla (TSLA) reported Q1 earnings that beat top and bottom line analysts estimates, a great sign that the company still performed well during an extremely challenging economic environment. Here are the numbers:
- Earnings per share: $3.22 vs $2.26 expected
- Revenue: $18.76 billion vs $17.80 billion expected
- Auto Revenue: 16.86 billion, 87% YoY
- Auto Gross Margins: 32.9%
- Gross Auto Profits: $5.54 billion.
- Car Deliveries: 310,048
- Elon Musk has reportedly received $46.5 billion in commitment letters to finance his acquisition of Twitter, were it to go through.
- San Francisco Fed President Daly: “I like to think of it as expeditiously marching towards neutral. It’s clear the economy doesn’t need the accommodation we’re providing.”
- First-time jobless claims totaled 184,000 during the week ended April 16, according to the Labor Department’s latest weekly report. Claims had totaled 186,000 a week earlier.
- Tesla (TSLA) CEO Elon Musk has created a number of new holding companies, Bloomberg. The new companies could be a vehicle to facilitate his bid for Twitter, though this is only speculation.
- Shares of Disney (DIS) slumped after Florida’s Senate moved to approve a bill to end the company’s special district designation on its theme parks. Currently, under Florida law Disney can regulate its own power, water, and emergency services.
- Analysis of Google search data reveals that online searches for “buy Netflix stock” exploded 931% worldwide on April 19, following the extreme post-earnings sell-off.
- Apple (AAPL) spent a record quarterly high of $2.5 million on lobbying in the first three months of 2022 amid increased pressure from the U.S. Congress on technology companies over antitrust issues.
- Ford Motors (F) to recall 650,000 vehicles after an issue was detected with the windshield wipers.
- Elon Musk may take steps to commence a tender offer to purchase Twitter outstanding shares, a filing with U.S. regulators showed on Thursday.
- Starbucks (SBUX) filed two complaints with the U.S. National Labor Relations Board alleging unfair practices by labor organizers toward workers and what it calls “an increase in nefarious behavior.”
- 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.
- A group representing some of Meta Platforms Inc’s institutional investors urged shareholders of the Facebook owner to vote against the re-election of two of its board members, Marc Andreessen and Peggy Alford.
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