Charles Schwab and Co.
- Apr 23, 2022
- 10 min read

Stocks Sell Off to Close Out the Week

U.S. equities closed solidly lower, with the major indexes posting another week of losses. The markets met some resistance the past two sessions as they brace for an aggressive Fed policy tightening cycle, with Chairman Powell yesterday saying a 50-bp rate hike is on the table for the May 4 decision. Powell's comments came amid a panel with other key central banks out of Europe, which looked to keep expectations of monetary policy tightening around the globe intact. Earnings season continued to roll on, with Dow member American Express Company topping expectations but reporting a jump in expenses and reaffirming its guidance, while Dow component Verizon Communications slightly exceeded earnings estimates and issued cautious guidance. Elsewhere, Gap cut its full-year sales growth and announced the departure of its Old Navy President and CEO. To no avail, the economic calendar was on the brighter side, with key preliminary April reads on manufacturing and services sector activity still suggesting expansion, with the former unexpectedly accelerating. Treasuries were mixed and the U.S. dollar rebounded, while crude oil and gold prices were lower. Europe finished with widespread losses, and stocks in Asia were mostly lower, with the markets digesting the commentary from the central banks, along with a host of manufacturing and services data.

The Dow Jones Industrial Average plunged 981 points (2.8%) to 33,811, the S&P 500 Index declined 122 points (2.8%) to 4,272, and the Nasdaq Composite decreased 335 points (2.6%) to 12,839. In moderate volume, 4.5 billion shares of NYSE-listed stocks were traded, and 4.3 billion shares changed hands on the Nasdaq. WTI crude oil shed $1.72 to $102.07 per barrel. Elsewhere, the gold spot price traded $13.10 lower to $1,935.10 per ounce, and the Dollar Index was 0.6% higher at 101.15. Markets were lower for another week, as the DJIA was down 1.9%, the S&P 500 lost 2.8%, and the Nasdaq Composite tumbled 3.8%.

Dow member American Express Company (AXP $181) reported Q1 earnings-per-share (EPS) of $2.73, above the $2.40 FactSet estimate, as revenues rose 29.0% year-over-year (y/y) to $11.7 billion, above the Street's $11.6 billion expectation. The company said its revenue growth was driven by increased card member spending, while volumes reached a monthly record high in March despite the uncertain macro environment. AXP also said it saw increased engagement across its customer categories, led by strong spending by Millennial and Gen Z card members and small and medium-sized businesses. The company also noted that goods and services spending continued to accelerate, and travel and entertainment spending jumped y/y and essentially reached pre-pandemic levels globally for the first time in March. However, AXP's expenses jumped 34% y/y in Q1 and it reaffirmed its full-year guidance and its EPS outlook came in below estimates. Shares were lower.

Verizon Communications Inc. (VZ $52) posted adjusted Q1 EPS of $1.35, one penny above estimates, with revenues rising 2.1% y/y to $33.6 billion, roughly in line with forecasts. The company posted a net loss of postpaid phone additions, but that figure was smaller than expected and was an 80% improvement from a year ago. VZ said it expects full-year earnings to be at the lower end of its previously-guided range, citing competition and the impact of inflation. VZ traded solidly lower.

Gap Inc (GPS $12) fell nearly 20% after the company cut its full-year net sales growth "in light of the macro-economic dynamics as well as the execution challenges at the Old Navy brand." GPS also announced that Old Navy President and CEO Nancy Green is exiting the business this week. The company also said it has taken a more aggressive approach to balancing its inventory assortment, which has resulted in increased promotional levels primarily at Old Navy.

Q1 earnings season continued to heat up and of the 98 S&P 500 companies that have reported thus far, roughly 65% have topped sales expectations and about 79% have bested profit projections, per data compiled by Bloomberg.

Schwab's Chief Investment Strategist Liz Ann Sonders discusses the market action in equities in her article, No Quarter (For Consistency), noting how at the industry level, economically sensitive areas have not held up as well as the broader S&P 500 Index. Moreover, she discusses the brutal start for the bond market this year and how earnings will start to matter again.

We recently changed all our sector calls to "neutral" until there's more clarity on how the Russia-Ukraine war will affect the global economy and we discuss the impact of the recent oil market action in our latest Schwab Sector Views: What's Up With Oil?

Amid the volatility in the markets, you can find all our market commentary on our Market Insights page, and you can follow us on Twitter at @SchwabResearch.

April business activity mixed with services slowing and manufacturing accelerating

The preliminary S&P Global U.S. Manufacturing PMI Index for April unexpectedly rose to 59.7 from March's unrevised 58.8 figure, and versus the Bloomberg consensus estimate of a decrease to 58.0. The preliminary S&P Global U.S. Services PMI Index showed growth for the key U.S. sector in April surprisingly slowed to 54.7, compared to expectations to remain at March's 58.0 figure. However, growth remained as readings above 50 for both indexes denote expansion.

S&P Global said the reports signaled a strong, but slower increase in business activity across the U.S. economy in April. The global data service also noted that although still faster than January's omicron-induced slowdown, overall growth was dampened by a softer rise in service sector output following pressure on customer spending as prices continued to increase markedly. The report said manufacturers, on the other, indicated a stronger expansion in production on the back of rising demand, and they noted the quickest uptick in production since last July.

Treasuries were mixed after a recent drop that has seen rates jump. Aggressive monetary policy tightening expectations have fostered the rise in yields, along with recent inflation data and comments from Fed officials. Fed Chairman Jerome Powell yesterday said a rate hike of 50 basis points (bps) was on the table for its May 4 monetary policy decision, which would be the first time it raised rates in excess of 25 bps in over 20 years. Meanwhile Fed officials have suggested that the beginning of its balance sheet reduction program was also set to start soon, with a ramp-up to $95 billion in securities to "mature off" the balance sheet each month.

Schwab's Chief Fixed Income Strategist Kathy Jones notes in her latest article, At Last—Income in the Fixed Income Market, noting how the first quarter was brutal for fixed income investors, as bond prices fell, and yields rose. However, she notes how the steep rise in yields should mean that income investors can finally earn relatively attractive yields in the bond market, after enduring nearly three years of near-zero interest rates.

The yield on the 2-year note rose 1 bp to 2.71%, while the yield on the 10-year note was down 1 bp at 2.90%, and the yield on the 30-year bond was flat at 2.94%.

Europe and Asia lower to close out the week, data and monetary policies in focus

European equities finished solidly lower across the board to close out the week, with the markets digesting some key economic data, while also paying close attention to commentary from the Fed, European Central Bank (ECB), and Bank of England (BoE). Moreover, the ongoing war in Ukraine, which has escalated as Russia began an offensive in the east this week, seemingly continued to weigh on conviction. The heads of the central banks participated in a forum yesterday, with Fed Chairman Powell saying a 50-bp hike is on the table for May, and ECB President Lagarde suggesting the timing of its first rate hike remains uncertain and data dependent, with the central bank expected to end its bond purchasing program in Q3. BoE Governor Bailey signaled that it will need to continue to hike rates at this time despite growth risks to combat inflation pressures but held off on signaling an acceleration in its tightening campaign. In economic news, the preliminary Eurozone Manufacturing PMI slowed in April, but continued to expand at a faster pace than expected, while the U.K. Manufacturing PMI unexpectedly accelerated to a faster pace of growth. The Eurozone Services PMI was a standout, showing growth increased surprisingly, and the U.K. Services PMI slowed but remained comfortably in expansion territory. The euro lost ground on the U.S. dollar and bond yields across Europe were mixed, while the British pound was solidly lower versus the greenback and bond yields in the U.K. came under pressure.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers fresh commentary in his article, Deglobalization is Political, Not Economic, discussing how the "end of globalization" is a phrase that has come up a lot lately, with stories written about deglobalization hitting a fevered pitch with the war in Ukraine. Yet, Jeff adds, global trade hit a new all-time high this year after climbing steadily throughout the past six years despite the brief "V"-shaped disruption in response to the pandemic lockdowns. He notes that politics may have little impact on economic globalization or corporate profits—which gives little reason for investors to deglobalize their portfolio despite the headlines.

The U.K. FTSE 100 Index was down 1.4%, Germany's DAX Index dropped 2.5%, France's CAC-40 Index fell 2.0%, Italy's FTSE MIB Index decreased 2.1%, Spain's IBEX 35 Index declined 1.8%, and Switzerland's Swiss Market Index traded 0.4% lower.

Stocks in Asia were mostly lower with the markets digesting continued hawkish commentary out of the U.S. that solidified elevated expectations of aggressive Fed monetary policy tightening. Meanwhile, the ongoing and escalating war in Ukraine also likely remained a drain on global economic sentiment, along with the festering impact of the COVID spread in China that had fostered new rounds of lockdowns this month. The impact of the lockdowns has offset some of the recent stimulus efforts that the country has announced, that has come in a bit below expectations, but more efforts are expected to be announced to help mitigate the disruption. Schwab's Liz Ann Sonders, Jeffrey Kleintop, and Kathy Jones note in our latest Schwab Market Perspective: Inflation's Shadow, how rising prices and slowing demand have cast shadows on this year's economic outlook, especially as the Federal Reserve begins tightening monetary policy. Whether the situation will lead to a recession remains to be seen. Globally, there are signs that stretched supply chains are beginning to ease, potentially slowing the pace of inflation—which would be welcome news for investors and central bankers.

The aforementioned headwinds appeared to overshadow some relatively upbeat preliminary April reports on business activity. Japan's Services PMI improved and moved slightly back into expansion territory and its Manufacturing PMI slowed modestly but continued to show growth. Australia's Services and Manufacturing PMIs both showed growth accelerated, with the former rising solidly. In other economic news, Japan's national consumer price inflation accelerated y/y in March but the increase was in line with expectations.

Japan's Nikkei 225 Index fell 1.6%, giving up a weekly gain, while the yen was choppy after a recent tumble versus the U.S. dollar to a 20-year low. Australia's S&P/ASX 200 Index also dropped 1.6% despite the data, South Korea's Kospi Index moved 0.9% to the downside, and India's S&P BSE Sensex 30 Index declined 1.2%. The Hong Kong's Hang Seng Index dipped 0.2%, though China's Shanghai Composite Index bucked the trend, advancing 0.2% but the index registered a sharp weekly drop.

Stocks post another down week amid lingering headwinds

The S&P 500 registered a third-straight weekly decline with the markets remaining hamstrung by multiple major uncertainties and headwinds. Fedspeak continued to pour in and boost expectations of aggressive Fed measures on the near horizon, including a series of 50 bp hikes and the beginning of reducing its massive balance sheet. Meanwhile, the war in Ukraine escalated to keep global economic and inflation concerns palpable, while earnings season began to heat up. After recently steepening, the Treasury yield curve flatten somewhat as rates on the short end of the curve jumped and decisively outpaced increases on the mid-to-longer ends. The U.S. dollar continued to rally, notably against the yen and euro as the Fed is set to be much more aggressive than the European Central Bank and the Bank of Japan. The Dollar Index hit the highest level since March 2020. Crude oil prices continued to be volatile and noticeably gave back most of last week's rally as the markets grappled with the ultimate global economic impacts of the war in Ukraine, China's renewed COVID lockdowns, and tighter monetary policies. Despite the skittishness and persisting inflation concerns, gold prices relinquished last week's advance.

Earnings season is just getting underway and results have been mixed across different sectors, with Netflix Inc. (NFLX $216) falling sharply after its unexpected subscriber decline and softer-than-expected guidance to weigh on the Communications Services sector, which was the worst performer on the week. However, Tesla Inc. (TSLA $1,005) helped keep weekly losses in check for the Consumer Discretionary sector, as did upbeat guidance out of United Airlines Holdings Inc. (UAL $51) and American Airlines Group Inc. (AAL $20) for the Industrials sector. The Energy sector was among the worst performers, and the defensive tone of the markets as of late continued with Real Estate and Consumer Staples the only two major market sectors seeing green figures for the week, with the latter likely helped out by an earnings report from Dow member Procter & Gamble Company (PG $161).

Next week, earnings season will shift into high gear with several notable reports on the docket, including Dow members Apple Inc. (AAPL $161) and Microsoft Corporation (MSFT $274), along with fellow mega-caps Amazon (AMZN $2,887) and Alphabet Inc. (GOOGL $2,393). Although earnings season is poised to garner the heaviest attention, bolstered by the Fed's quiet period a week before its May 3-4 meeting, next week's economic calendar also could wrestle away some of the spotlight. Some reports worth noting that could have an impact include; the preliminary March durable goods orders report, the Conference Board's April Consumer Confidence report, new home sales, the first read (of three) of Q1 GDP, March personal income and spending figures, jobless claims for the week ended April 23, and the final April University of Michigan Consumer Sentiment Index.

Next week's international economic front could also foster some reactions, courtesy of; China—industrial profits, along with Manufacturing and Non-Manufacturing PMIs. Japan—Bank of Japan monetary policy decision, retail sales, and industrial production. Eurozone—construction output, economic confidence, CPI estimate, and Q1 GDP, along with Germanbusiness confidence and preliminary Q1 GDP.

Important Disclosures

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market condition

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Stocks Sell Off to Close Out the Week

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