Market Rover 04.27.2022

Earnings Season & Netflix's Big Miss

Earnings season is once again upon us, and so far, 20% of S&P 500 companies have reported. 79% of these companies have reported earnings per share above estimates. This percentage is above the five-year average of 77%, according to data from Factset. The earnings picture is somewhat mixed, however.

So far, S&P 500 companies are reporting earnings of 8.1% above estimates in aggregate versus the five-year average of 8.9% above estimates. Netflix surprised the market with a significant subscriber loss last week, and the data put some pressure on other similar streaming stocks like Discovery. Netflix cited password sharing as the catalyst for the decline in subscribers. Competition has certainly heated up in the streaming space, resulting in consumers having a wider selection of streaming providers than ever before.

Powell Unnerves Markets

On Thursday, at an event hosted by the International Monetary Fund, the Fed Chair offered his view that it may be appropriate to move more quickly on raising interest rates. He indicated that a 50 basis point hike was on the table for the Federal Open Market Committee (FOMC).

His comments also emphasized the need to restore price stability, recalling the successful efforts of former Fed Chair Paul Volker, who used a series of rate hikes to tame the inflation of the 1970s and early 1980s. While some observers anticipated these comments, yields rose, and stocks fell in response.

Observations 

U.S. equities continued their move lower as indicated by the S&P 500 which was down -2.74% on the week.

In the U.S., smaller sized companies underperformed their larger-sized counterparts, as the Russell 2000 shed -3.20%.

International stocks as measured by the MSCI EAFE were negative again, down -1.53%, but outperforming domestic stocks.

Emerging market stocks continued to fall with the MSCI EM decreasing -3.33%.

U.S. investment grade bonds were negative last weekwith the Bloomberg Barclays U.S. Aggregate Bond index down -1.04%.

By the Numbers

BEHIND THE AVERAGE

The S&P 500 was up +15.6% (total return) over the 1-year ending 3/31/2022, an average monthly gain of +1.22% (total return).  However the index actually fell in 4 of the last 12 months, posting monthly results that ranged from a gain of +7.0% (total return) to a loss of 5.2% (total return).  The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation.  It is a market value weighted index with each stock's weight in the index proportionate to its market value (source: BTN Research).         

BIG SWINGS 

The yield on the 10-year Treasury note was cut in half during the first year of the pandemic (2020), falling from 1.91% on 12/31/2019 to 0.91% on 12/31/2020.  That movement in rates has flipped around in the first 16 weeks of 2022 as the yield on the 10-year Treasury note has nearly doubled, rising from 1.50% on 12/31/2021 to 2.91% as of last Friday’s close on 4/22/2022 (source: Treasury Department). 

MISSING FROM WORK 

An estimated 3.4 million American workers dropped out of the US labor force since early 2020 when the global pandemic began and have chosen not to return, i.e., the difference between a projected 167.8 million workers that would have been in the labor force if the pandemic had not occurred vs. 164.4 million workers actually in the labor force as of March 2022 (source: Department of Labor).

Reprinted with permission from BTN. Copyright © 2022 Michael A. Higley.

1Data obtained from Bloomberg as of 4/22/2022

Index Definitions

S&P 500: The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

NASDAQ: The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Russell Mid-Cap: Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index.

Russell 2000: The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8% of the Russell 3000 total market capitalization. The real-time value is calculated with a base value of 135.00 as of December 31, 1986. The end-of-day value is calculated with a base value of 100.00 as of December 29, 1978.

MSCI EAFE: The MSCI EAFE Index is a free-float weighted equity index. The index was developed with a base value of 100 as of December 31, 1969. The MSCI EAFE region covers DM countries in Europe, Australasia, Israel, and the Far East.

MSCI EM: The MSCI EM (Emerging Markets) Index is a free-float weighted equity index that captures large and mid cap representation across Emerging Markets (EM) countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.

Bloomberg Barclays US Agg Bond: The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-relatedand corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).

Bloomberg Barclays High Yield Corp: The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.

Bloomberg Barclays Global Agg: The Bloomberg Barclays Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.

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