Disappointing Earnings And A Spike In Inflation Send Stocks Plunging

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(Friday Market Close) The S&P 500 (SPX) took a dramatic 3.63% slide on Friday right down to its February and March lows while Cboe Market Volatility Index (VIX) spiked to a close near 34. Investors began heading for the exits after the PCE Price Index—the Federal Reserve’s preferred barometer—showed inflation rose a staggering 0.9% in March and 6.6% year over year. Many analysts were hoping that peak inflation occurred in March, but today’s PCE numbers clouded the picture.

March’s PCE numbers immediately worried investors wondering how an already hawkish Fed might react during the two-day Federal Open Market Committee meeting starting Monday. Investors were already expecting a 50-basis point hike in the Fed’s overnight rate, but the CME FedWatch Tool now reveals a small chance of a 75-basis-point hike now.

After rallying more than 3% on Thursday, the Nasdaq Composite ($COMP) gave back all of its gains and then some. The index began falling early in the session on news that Apple (NASDAQ: AAPL) anticipates future supply chain problems. AAPL fell 3.66% on the day and ugly earnings miss Thursday by Amazon (NASDAQ: AMZN), caused it to fall more than 14% as market losses accelerated during the afternoon

Negative earnings reports weren’t limited to tech stocks—even the energy sector saw misses from Exxon Mobil XOM and Chevron CVX despite enormous gains in revenue. The miss by CVX caused the stock to fall 3.16% which, as one of the Dow’s 30 industrials, helped bring down the Dow Jones Industrial Average ($DJI) 2.77% by the close.

Of the major indexes, the Dow had the best month but only because it fell the least—finishing off 4.9% for the month April. The SPX dropped nearly 9%, the Russell 2000 (RUT) lost nearly 11%, and the Nasdaq fell more 13% in a volatile April. The Russell and the Nasdaq are now back in bear market territory because both indexes are more than 20% off their all-time highs.

Energy sector led all sectors last week with the Energy Select Sector Index returning 3.72%. It was followed by the Materials Select Sector Index at 0.87% All other sectors were negative for the week. The Consumer Discretionary Select Sector Index was the worst, falling more than 7%, indicating consumer hesitancy could be on the rise.

The Consumer Staples Select Sector Index, which tracks essential goods, was the only sector index to end the month in the green. It hung on to a gain of about 2%. The technology index finished down 12.57%, behind the consumer discretionary index which lost 10.78%.

CHART OF THE DAY: STINKY SOX. The PHLX Semiconductor Index (SOX—candlesticks) has underperformed the Technology Select Sector Index ($IXT—blue) and the S&P 500 (SPX—pink) over the last 12 months. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Chips Have Dipped

One story you might have missed with all the talk around Apple and Amazon is that Intel’s INTC Q1 earnings missed expectations, shaking the global semiconductor sector. The miss was fueled, at least in part, by the seemingly endless conversation about pandemic supply chain disruptions and day-to-day market instability from the Russia-Ukraine war. But there are some signs that the chip shortage may finally be ending.

Despite reporting a slowdown in demand for PC computer chips, Intel projected the chip shortage could stretch into 2023. However, tech research company Gartner IT, indicated that chip shortages appear to depend on the product sector. Gartner sees semiconductor shortages easing in PCs and smartphones and the auto industry could be caught up by the end of the year.

The PHLX Semiconductor Index (SOX) rallied on news of the shortages back in fourth quarter 2021 and gave back much of its gains in January. Today, it is underperforming the technology sector and the S&P 500 (SPX).