U.S. Stock Market Is Top-Heavy, but Carnage Is Widespread
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Eight companies are to blame for nearly half the stock market’s decline this year—and the pain doesn’t end there. Apple Inc., Microsoft Corp. , Amazon. com Inc., Tesla Inc. and the parent companies of Google and Facebook swelled to be so big in recent years that they accounted for 25% of the S&P 500 heading into 2022. The benchmark U.S. stock index is weighted by market value, which means the biggest companies have the most influence. Just recently, those companies were powering the stock market ever higher. Now that they are faltering, the broader market is too. Together with Nvidia Corp. and Netflix Inc. , they are responsible for 49.6% of the benchmark’s 2022 losses through Tuesday on a total-return basis, according to S&P Dow Jones Indices. The S&P 500 has tumbled 18% in 2022, or 17% when accounting for dividends and stock distributions. The stock market’s former darlings have fallen even farther. Netflix has declined 71%, and Facebook parent Meta Platforms Inc. and Nvidia are down 43% and 42%, respectively. The other five stocks have dropped between 21% and 36%. For years, investors favored the relatively expensive shares of fast-growing companies, many of them tied to technology, over their cheaper, slower-growing counterparts. The pandemic turbocharged those bets, as the shift by many consumers to working, socializing and shopping from home powered swift growth for many tech companies. The stocks supporting the S&P 500 this year have been Exxon Mobil Corp. , Chevron Corp. and ConocoPhillips, along with Merck & Co. and AbbVie Inc. , according to S&P Dow Jones Indices. The energy stocks have climbed more than 40% this year, while Merck has added 20% and AbbVie has climbed 13%. All five stocks traded this week at a lower multiple of their projected earnings than did the benchmark index. Big tech stocks aren’t the only ones dragging the market lower. This week major retailers have been punished, with Target Corp. shares plummeting 25% on Wednesday after the company missed earnings expectations as supply-chain costs and inflation eroded profits. Walmart Inc. shares dropped 11% a day earlier after citing similar reasons for a lower-than-expected profit.
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On Thursday, the SMI lost 2.3 per cent to 11,309 points. All 20 SMI stocks closed with losses. 41.94 (previously: 34.9) million shares were traded. Among the individual stocks, the shares of Julius Baer (-5.9 per cent) were under selling pressure. The bank's new financial targets were good, but too far in the future to support the share price. UBS and CS Group shares were down 1.4 and 1.7 per cent, respectively. Clariant shares held up slightly better than the overall market, down 1.3 per cent. The chemical company gave a very optimistic outlook for the current year as part of its final annual figures for 2021, traders said. Clariant said it expects "strong" growth in 2022 and "particularly strong" in the first half of the year. At the same time, margins are expected to increase in all areas. Duty-free shop operator Dufry presented decent business figures and optimistic forecasts. However, the shares lost 5.8 per cent on recession worries.
European shares were deep in the red Thursday, tracking selloffs in the U.S. and Asia on heightened concerns that high inflation and slowing growth raise the risk of a global downturn. Some major U.S. retailers have this week reported lower quarterly earnings due to rising costs, sluggish sales and supply-chain disruptions, fanning concerns that the global economy could be headed for a recession. The Stoxx Europe 600 index fell 1.4% to 427.99 points. In Paris, the CAC 40 and SBF 120 lost 1.3% each. In Frankfurt, the DAX 40 gave up 0.9%, and the FTSE 100 in London was down 1.8%. Biotechnology company Valneva (+16.9%) said the European Medicines Agency (EMA) had accepted the submission of a marketing authorisation dossier for its Covid-19 vaccine, VLA2001. Environmental services group Derichebourg (-14.4%) has signed an agreement to buy a 14.7% stake in Elior (-4.9%), which will take its holding in the catering group to 19.6%. Retirement home operator Orpea (-9.8%) continued to fall, despite the retirement home operator's attempts to reassure investors in the face of various accusations against it. Shopping centre operators Unibail-Rodamco-Westfield (-11.5%) and Klepierre (-9.1%) also ended sharply lower. Banco Bilbao Vizcaya Argentaria (-1.8% in Madrid) announced that it controls 86% of Turkiye Garanti Bankasi following its takeover bid for the 50.15% of the Turkish financial services company that it did not already own. The deal will have a negative effect of 23 basis points on BBVA's CET1 capital ratio, the Spanish bank said.
U.S. stocks and bond yields fell, with the S&P 500 flirting with a bear market, in a continuing selloff driven by investor fears that the economy could be pitched into a recession.The major indexes finished lower, with all three on track for weekly losses of at least 2.9%. Concerns about consumer spending, which helped lift the market out of pandemic lows, have weighed on stocks and bond yields. The S&P 500 lost 22.89 points, or 0.6%, to 3900.79, coming close to bear-market territory—market shorthand for a 20% fall from a recent high. The Dow Jones Industrial Average fell 236.94 points, or 0.8%, to 31253.13. Both indexes closed at their lowest level since March 2021. The Nasdaq Composite Index, which entered bear-market territory earlier this year, retreated 29.66 points, or 0.3%, to 11388.50. Earnings reports from some of America’s biggest retailers in recent days have added to concern that the highest rate of inflation in four decades is catching up with U.S. consumers and pitching the economy toward a recession. Investors were already grappling with the end of an era of loose monetary policy that stoked big gains for stocks and other riskier assets. The combination of factors has recently fed into steep losses for stocks and some corporate bonds, and many investors expect the volatility to continue. Kohl’s shares gained $1.91, or 4.4%, to $45.04, after executives said suitors remained interested in buying the company, said sales weakened in April, making it the latest retailer to point to inflationary pressures on demand. Walmart and Target this week said higher costs ate into profits in the latest quarter, leading to a selloff of their shares that rippled through the broader market. Cisco Systems tumbled $6.64, or 14%, to $41.72 after the communication-equipment firm missed analyst expectations for its quarterly results. BJ’s Wholesale Club said gasoline sales boosted revenue and profit in its first quarter, sending shares up more than $3.97, or 7.4%, to $57.39.
In Asia, major indexes broadly closed with gains on Friday. The Chinese central bank provided a positive impulse. It lowered the loan prime rate (LPR) by 15 basis points to 4.45 per cent in the five-year range and left it at 3.70 per cent in the one-year range. In Shanghai, the composite index gains 1.1 per cent, Hong Kong is up 1.8 per cent and Seoul increases by 1.6 per cent. In Tokyo, the Nikkei index gains 1.2 per cent closing at 26,707 points. Seiko Epson jumps more than 9 per cent. The Japanese printer manufacturer announced a share buyback and a special dividend.
Investors flocked to Treasurys on Thursday, driving the 10- and 30-year yields to one-week lows, amid a continued stock selloff on stagflation fears that deepened this year’s double-digit losses for all three major indexes. The 10-year U.S. Treasury note remained stable at 2.893%. The two-year yield lost almost 10 basis points.
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