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The market closed modestly higher on Wednesday to recover some losses after the major indexes suffered their worst day of 2022 as concerns over inflation, global economic growth, geopolitical tensions, and a hawkish Federal Reserve stirred up uncertainty. Earning season continues, with a host of companies, including Meta Platforms (FB), PayPal (PYPL), and more reporting. 

Historically, April is usually one of the strongest months for stocks, producing a positive return in the S&P 500 (SPY) in fifteen of the last sixteen years. This month, however, the market is set to close deep in the red, wrought by Russia’s war in Ukraine, the fastest pace of inflation in four decades, renewed lockdowns across China. Moreover, though the Federal Reserve is currently in a “blackout” period ahead of their May 4 meeting, officials have made it clear that fighting inflation is their priority.

Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management, said “The wall of worry has been building, as it relates to Fed worries. Just a little over three months ago, the futures market was pricing in just three or four interest rate hikes for all of 2022. We’re quite a bit above that now. And markets are pricing in a federal funds policy rate at about 2.7% by year end. So that’s a significant amount of ratcheting up of Fed tightening that’s been building up throughout the year. And it’s one of the major reasons why we’ve seen volatility kick up as well.”

As China fights a spike in COVID cases, the government has re-imposed widespread lockdowns and mandatory testing as part of their “zero-COVID” policy. Around 25 million people in Shanghai alone, China’s financial center, are locked down on Monday. Under China’s unbending virus controls, anyone found positive — even if they are asymptomatic or have a mild infection — must be isolated from non-infected people.

In a note to clients, Bank of America analyst Helen Qiao slashed her forecast for China’s gross domestic product (GDP) from 4.8% to 4.2%. The note said, “COVID-19 lockdowns and restrictions imposed in Shanghai and neighboring cities are not only hitting local demand but also causing logistic breakdowns and widespread supply-chain disruptions within and outside of the area. In our view, even if such control measures will ultimately be rolled back and economic activities will gradually normalize by mid-year, a heavy toll on growth already seems inevitable.”

We are currently in the heart of earnings season, with  mega-tech stocks (AAPL, AMZN, FB, MSFT, and GOOG) reporting. Yesterday, Microsoft (MSFT) posted earnings that exceeded analyst estimates, driven in part by impressive growth of its Azure cloud computing revenue. On the other hand Alphabet (GOOG, GOOGL), the parent company of Google, saw shares fall after posting a sharp deceleration in YouTube ad sales and missing top-line estimates. 

Meta Platforms (FB), the parent company of Facebook, reported Q1 earnings this afternoon that mostly missed analyst estimates. Still, shares of the company spiked more than 15% after-hours, reflecting how much negative sentiment had been baked in already. Here are the numbers:

  • Revenue: $27.9 billion versus $28.24 billion expected
  • Adjusted EPS: $2.72 versus $2.56 expected
  • Ad revenue: $27 billion versus $27.48 billion expected
  • Daily Active Users (DAUs): 1.96 billion vs $1.94 billion expected

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Highlights

  • Shares of Boeing (BA) close -7.53% lower after the company posted a wide than expected quarterly loss and missed on sale estimates. This was a HUGE miss. Here are the numbers
    • Revenue: $13.99 billion vs $15.94 billion expected
    • Operating Cash Flow: -$3.22 billion vs -$2.61 billion expected 
    • Earnings Per Share (EPS): -$2.75 vs -$0.12 expected
  • Shares of telemedicine company Teladoc (TDOC) cratered over -35% after lowering guidance moving forward. For a growth stock, guidance is the most important thing. Also note that Cathie Woods is one of the largest shareholders. 
  • Shares of PayPal (PYPL) rose modestly after the company reported better-than-expected earnings. PYPL hit a new 52-week low today. Here are the numbers
    • Revenue: $6.48 billion vs $6.4 billion expected
    • Adjusted earnings per share: 88c vs 88c expected
    • Total payment volume: $322.98 billion vs $323.13 billion expected
  • Shares of Ford Motors (F) rose modestly after the company reported earnings that were largely in-line with analyst estimates, though net profit was dragged down by reduced vehicle production and the decline in Rivian (RIVN) stock (Ford owns about 12% of Rivian). 
    • Adjusted EPS: 38 cents vs. 37 cents, according to Refinitiv consensus estimates
    • Automotive revenue: $32.1 billion vs. $31.13 billion, according to Refinitiv consensus estimates
    • Unadjusted Loss: $3.1 billion, including $5.4 billion from Rivian investment (last quarter RIVN netted profit of $3.3 billion)
  • A Delaware court ruled in favor of defendant Elon Musk on Wednesday in a shareholder lawsuit over Tesla’s $2.6 billion acquisition of SolarCity. Tesla shareholders alleged the company’s acquisition of the solar installer amounted to a bailout, pushed through by Musk who sat on both company boards at the time
  • The euro dropped to its weakest point since 2017 amid Russia’s invasion of Ukraine
  • Spotify (SPOT) stock sinks to the lowest price ever as the CEO tries to dispel any comparisons to Netflix (NFLX).

“Life is a long lesson in humility.” -James M. Barrie