Stock markets were hit in the past week with the S&P 500 dropping by 1.5% while the Unmanaged indexes of the U.S. equity markets were hit with the worst week since October. Some of the biggest losers were Chinese stocks, as weaker than expected economic data dampened investor sentiment. In addition, the Fed Chair, Powell, did little to soothe investors after an acrimonious meeting with congressional Republicans, leaving many investors uncertain. This article will address some of the concerns facing investors today, including the unmanaged indexes, earnings growth for the S&P 500, and the Federal Reserve’s stance on interest rates.
S&P 500 earnings growth projections for 2022
S&P 500 earnings growth projections for 2022 continue to be mixed. Analysts are still projecting year-over-year increases, but revenue growth is below average. They are also predicting a decline in earnings for the fourth quarter. The decline is estimated to be 2.8%. It is a smaller decline than the 6.1% estimated for Q3 2022. But a wide range of sectors are projected to report year-over-year decreases.
The Energy sector has been a standout this year. The oil price has helped energy profits increase dramatically. According to analysts, Energy is expected to have above-average net profit margins in Q4 2022. However, the Financials and Materials sectors have seen year-over-year earnings decreases.
Goldman Sachs Group Inc. lowered the forecast for S&P 500 earnings. It previously had expected 3% growth. However, it lowered the forecast because of weak third-quarter margins.
Fed Chair Powell did little to calm fears
The Federal Reserve on Wednesday raised its benchmark short-term rate by another quarter point, boosting the key lending rate to a range of 3.75 percent to 4 percent. It’s the Fed’s sixth rate hike this year.
Fed Chairman Jerome Powell made clear that the Fed is not willing to slack off. He said the Fed would continue to use its tools to fight inflation.
His speech came at a time when prices are starting to show signs of taming. In June, the consumer price index fell a modest 0.1 percentage points, and in July, the measure rose just a fraction of a percentage point. However, Powell’s speech did not do much to address concerns about how long it’ll take for inflation to level off.
Chinese stocks fell as weaker-than-expected economic data dampened investor sentiment
China’s equities fell as economic data disappointed investors. The CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, dropped 1.0% last week. It was the first time in four weeks that the benchmark index slipped.
Meanwhile, the Hang Seng index slumped 2.2%. Technology stocks such as Alibaba and Tencent sank, along with some heavyweight mining stocks. Investors worried about the possibility of further declines in the Chinese economy.
The Hang Seng Tech Index, which tracks the 30 largest technology firms in Hong Kong, declined by more than a fifth. Goldman Sachs lowered its outlook for Chinese tech stocks.
In addition to weaker-than-expected economic data, China has also been grappling with virus-related headwinds. As a result, the country’s export orders fell at the fastest rate in a decade.
Moderna (MRNA) was the best performing member of the S&P 500 in the last week
Moderna (MRNA) is a biotech company that makes vaccines. The company has a sizable pipeline with nine potential vaccines. One of them is a personalized cancer vaccine. This is in the early stages of trials, and could be a big hit.
The S&P 500 is an index of leading companies in the market. The inclusion of Moderna in this index has helped it climb. In fact, the stock has been the best performer in the index in the past week.
Moderna is developing a variety of drugs, including vaccines for infectious diseases, rare diseases, and immuno-oncology. There are also 13 therapeutic candidates in the pipeline.
Moderna’s stock was recently upgraded by a U.S. Food and Drug Administration (FDA) vaccines advisory committee. The committee unanimously approved a third booster dose of the Covid-19 vaccine. If this dose becomes widely available, it would boost the addressable market for the drug.
Unmanaged indexes of the U.S. equity markets
An unmanaged index is a stock index that does not incur fees or costs. The Dow Jones Industrial Average, S&P 500, and the Nasdaq Composite are all unmanaged indexes. Traders cannot invest directly in the indexes. However, it is possible to trade in and out of these funds.
Investors are looking for signs that the market has bottomed out. They’ll also be watching for earnings growth and inflationary pressures. But, one big worry is a looming recession.
A Bloomberg survey shows a 70% chance that the economy will be in a recession in 2023. That means long-term bonds are becoming more attractive. Also, some investors are worried about the growing threat of competition.
One of the most important data points this week was the consumer price index (CPI). The inflation rate ticked down slightly from November’s reading. This was in line with expectations. It was also a good sign for the Federal Reserve.