Major indexes wiped out yesterday’s rally gains, then on Thursday in a market-wide rout as Wall Street took a more sober look at the investing landscape.
On the one hand, most of the worries weighing on equities have not disappeared, including on the interest rate front. While Federal Reserve Chairman Jerome Powell dismissed the idea of a 75 basis point hike yesterday, at least two more 50 basis point hikes are expected at the next two Federal meetings. Open Market Committee – still considerable level of monetary tightening.
“We are not out of the woods yet, because there is still too much uncertainty about how the actions of the Federal Reserve will bring inflation under control without causing a recession,” said Zach Stein, director of the investments from climate change-focused investment manager Carbon Collective.
Indeed, the 10-year Treasury yield, which was falling yesterday, came back to life on Thursday to eclipse 3% again. This particularly weighed on rate-sensitive growth places in tech and tech stocks such as mega-caps. You’re here (TSLA, -8.3%), Nvidia (NVDA, -7.3%) and Apple (AAPL, -5.6%).
Speculative assets such as cryptocurrency were also heavily risked; Bitcoin, for example, plunged 8.9% to $36,287. (Bitcoin trades 24 hours a day; prices shown here are as of 4 p.m.)
Gene Goldman, chief investment officer of Cetera Investment Management, pointed to additional factors in Thursday’s woes.
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“There is less optimism around a less hawkish Fed and a soft landing scenario,” he says. “We saw data this morning depicting more inflation and a weaker economy – labor costs jumped in the first quarter, jobless claims rose and productivity was weaker than expected.”
Goldman also pointed to disappointing earnings reports from the e-commerce industry, which, due to high valuations on top of that, were selling particularly hard.
Shopify (SHOP), for its part, plunged 14.9% after the e-commerce company reported lower-than-expected first-quarter earnings and adjusted revenue (20 cents vs. 63 cents est.; 1.2 billion dollars vs. $1.24 billion est.) and low first-half revenue guidance amid tough comparisons. SHOP also announced that it would buy Deliverr, a San Francisco-based delivery startup, for $2.1 billion.
“While e-commerce growth was lower than we expected, SHOP topped pandemic numbers, with more favorable comparisons coming out of the calendar year,” said CFRA Research (Hold) analyst Angelo Zino. “That said, we believe consensus expectations will need to be tempered, in part reflecting weaker-than-expected merchant additions to start the year.”
eBay (EBAY, -11.7%) plunged despite first-quarter estimates after forecasting second-quarter revenue of $2.35 billion to $2.40 billion and adjusted earnings of 87 to 91 cents per share , both below expectations of $2.54 billion and $1.01 per share, respectively. Etsy (ETSY, -16.8%), meanwhile, slightly beat revenue expectations, but was just in line with earnings and forecast second-quarter sales of $540-590 million, well in line. fell short of analysts’ mark of $627 million. Amazon.co.uk (AMZN) bled 7.6% out of sympathy.
The result was the worst single-session performance of 2022 for both Nasdaq Compound (-5.0% to 12,317) and Dow Jones Industrial Average (-3.1% to 32,997), while S&P500 (-3.6% to 4,146) was just a hair’s breadth from surpassing its slightly larger April 29 decline.
Other news on the stock market today:
- Small cap Russell 2000 fell 4.8% to 1,855.
- U.S. crude oil futures rose 0.4% to settle at $1,081.26 a barrel.
- Gold Futures Contracts gained 0.3% to end at $1,875.70 an ounce.
- Reserve credits (BKNG) was a rare touch of green today, adding 3.3% after the online travel company reported earnings. In the first quarter, BKNG reported earnings of $3.90 per share on $2.7 billion in revenue, better than the 85 cents per share and $2.5 billion expected by analysts. The company also had gross bookings of $27.3 billion, a record quarterly amount. “We have a favorable view of online travel agencies, and in particular BKNG given its focus on Europe, where it generates the bulk of its gross profit,” says analyst John Staszak (Buy). at Argus Research. “BKNG is trading at an expected 2022 price-to-earnings ratio of 20.2, below the average for other online booking companies; however, we believe it deserves a higher multiple given the company’s strong earnings outlook.
Warren Buffett splashes more cash
Warren Buffett spends like there’s no tomorrow. A regulatory filing on Wednesday evening of its Berkshire Hathaway (BRK.B, -2.5%) revealed that Oracle’s Omaha holding company bought $350 million worth of shares in an energy company western oil (OXY, +1.0%).
Berkshire Hathaway’s stock portfolio has ballooned on Western exposure in recent months – Buffett revealed a nearly 10% OXY stake in early March which now sits at 15.2%, and he also holds $10 billion worth of 8% preferred stock, plus 84 million warrants to buy OXY stock. The move is part of Buffett’s renewed interest in energy, which has seen Chevron (CVX) become Berkshire’s fourth-largest holding.
This all ties into an even broader underlying theme, which is that Buffett has gone from being a voracious seller in 2021 to buying everything unrelated this year. Part of that seems to be that Oracle is profiting from a huge market downturn. But a closer look at what Buffett is buying indicates that he, like the rest of us, has rapidly rising prices on his brains.
We recently spoke with famed Buffett expert David Kass about the Berkshire CEO’s recent frenzy and Warren Buffett’s inflation-linked share of business.