By Hussein Sayed, Chief Market Strategist at Exinity
Asian stocks, European and US equity futures, commodities, and even US Treasury yields dropped early Monday following steep declines on Friday, which wiped off almost 1,000 points from the Dow Jones Industrial Average.
The past few weeks have been painful for stock investors with the S&P 500 on track for its worst monthly performance since March 2020. The broad-based index has declined more than 5.7% so far.
Meanwhile, the Nasdaq 100 may post the steepest monthly declines since the global financial crisis, with the index down 10% in April.
Friday’s selloff came after Federal Reserve Chair Jerome Powell endorsed a 50 basis-point rate increase when the committee meets on 3 May. While the markets were already pricing in such a move, and that was reflected in interest rates expectations, it felt different coming from Powell.
The path from zero to neutral interest rates has shortened incredibly quickly in the past few weeks, which investors haven’t taken lightly.
A hawkish Fed, ongoing supply chain disruptions, rising bond yields, stubbornly high inflation, and the ongoing war in Ukraine are all factors that need to be digested.
The question going forward is how each of these variables will contribute to the market’s performance and how much of it is already baked into prices?
Fear and opportunities
The good thing is most of these factors have been known for some time. Indeed, when markets are full of fear, they do bring long-term investment opportunities.
In such an environment, stocks with pricing power, strong cash flows, and stable margins are sought after. Many can be found in sectors such as utilities, mining, materials and healthcare.
But, there are even many companies in the tech sector that can show strong pricing power and that should be revealed during the current earnings season.
As we saw with Netflix last week, growth companies’ earnings that disappoint are heavily punished.
This week is the biggest in the earnings season with about 160 S&P 500 companies announcing results. Apple, Alphabet, Microsoft, Amazon and Meta Platforms are all on the list.
For information, disclaimer and risk warning note, visit: https://exinity.com/en-ae
Exinity ME Ltd, a company registered under the Laws of the Abu Dhabi Global Market (ADGM), is authorised and regulated by the Financial Services Regulatory Authority (FSRA)