Wall St slumps as weak earnings, rate hike clarity spook investors
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[April 23, 2022] By
David French
(Reuters) - Wall Street tumbled more than
2.5% on Friday, ensuring the three main benchmarks ended in negative
territory for the week, as surprise earnings news and increased
certainty around aggressive near-term interest rate rises took its toll
on investors.
It was the third straight week of losses for both the S&P 500 and the
Nasdaq, while the Dow Jones posted its fourth weekly decline in a row.
For the Dow, its 2.82% drop on Friday was its biggest one-day fall since
October 2020.
Exaggerated trading swings have become more common recently, as traders
adjust to new data points from earnings, as well as when rates will rise
again. For the Nasdaq, Friday was the eighth session in April, out of 15
trading days this month, where the index either rose or fell by more
than 2%.
"It's not very common, over the course of my time doing this job, for
the market to move 2% in either direction and to think 'there's not too
much to read into that'," said Craig Erlam, senior market analyst at
OANDA.
"That's not normal, but that's just how things have been for such a long
time now."
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Concerns about risks from interest rate hikes continued to reverberate
after Federal Reserve Chair Jerome Powell's hawkish pivot on Thursday,
where he backed moving more quickly to combat inflation and said a
50-basis-point increase would be "on the table" when the Fed meets in
May.
The idea of "front-end loading" the U.S. central bank's retreat from
super-easy monetary policy, which Powell articulated support for on
Thursday, has also forced traders to re-evaluate how aggressive
subsequent rate rises would be.
The CBOE Volatility index, also known as Wall Street's fear gauge,
jumped on Friday, ending at its highest level since mid-March.
Meanwhile, the latest earnings forecasts to jolt investors came from
healthcare, with HCA Healthcare and Intuitive Surgical Inc the worst
performers on the S&P 500.
HCA slumped 21.8% after reporting a downbeat profit view, while other
hospital operators felt the contagion: Tenet Healthcare, Community
Health Systems and Universal Health Services all tumbled between 14% and
17.9%.
Surgical robot maker Intuitive Surgical dropped 14.3% after warning of
weaker demand from hospitals due to tighter finances.
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Traders work on the floor of the New York Stock Exchange (NYSE) in
New York City, U.S., April 14, 2022. REUTERS/Brendan McDermid/File
Photo
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All 11 major S&P 500 sectors were down, although the 3.6% slip by healthcare was
outdone by materials, which was off 3.7%.
Materials was weighed down by Nucor Corp - down 8.3% after hitting a record high
after posting earnings on Thursday - and Freeport-McMoRan Inc, which slipped
6.8% as investors fretted over how interest rate hikes would impact copper
miners.
The Dow Jones Industrial Average fell 981.36 points, or 2.82%, to 33,811.4, the
S&P 500 lost 121.88 points, or 2.77%, to 4,271.78 and the Nasdaq Composite
dropped 335.36 points, or 2.55%, to 12,839.29.
For the week, the Dow dipped 1.9%, the S&P dropped 2.8%, and the Nasdaq declined
3.8%.
The prospect of a more hawkish Fed has led to a rocky start to the year for
equities, with Friday's sell-off taking declines on both the S&P and Dow since
the start of the year beyond 10%.
The trend is more pronounced in tech and growth shares whose valuations are more
vulnerable to rising bond yields. The Nasdaq is down 17.9% in 2022.
Earnings are due next week for the four biggest U.S. companies by market
capitalization: Apple, Microsoft, Amazon and Google parent Alphabet.
The quartet declined between 2.4% and 4.1% on Friday. Meta Platforms Inc, which
also has results on deck for next week, dropped 2.1%, taking its losses in the
last three days to 15.3%.
Investors are worried after streaming giant Netflix Inc's dismal earnings
earlier this week sent shockwaves through big tech and stay-at-home darlings
which benefited from pandemic factors such as lockdown measures.
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The volume on U.S. exchanges was 11.66 billion shares, compared with the 11.67
billion average for the full session over the last 20 trading days.
(Reporting by Bansari Mayur Kamdar, Amruta Khandekar and Anisha Sircar in
Bengaluru and David French in New York; Editing by Marguerita Choy and Aditya
Soni)
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