Another rough week for markets is over as the S&P 500 fell 2.47% and the tech-heavy NASDAQ dropped nearly 4%. Cryptocurrencies meanwhile traded mostly flat over the week but remained far below recent levels as Bitcoin (BTC) sits under $30,000 and Ethereum (ETH) traded below $2,000.
The week was filled with multiple disappointing earnings results especially from large retailers such as Target (TGT) and Walmart (WMT) which both saw higher costs from supply chain issues and inflation eat into its profits. Concerns over further tightening of monetary policy escalated following comments from Fed Chair Jerome Powell that the central bank will not hesitate to raise rates should high inflation persist.
Meanwhile, markets briefly rebounded Friday morning after news that China is lowering its interest rates by 15 basis points in an attempt to boost loans and mortgages as the housing market suffers following increased quarantine measures as a result of its zero-Covid tolerance policy.
New economic data was relatively light this week with the reports that were released focused on the housing market's performance last month. Housing Starts and Existing Home Sales numbers came in slightly below estimates with annualized rates of 1.724 million starts and 5.61 million sales compared to the expected 1.775 million and 5.65 million for April. Building Permits came in right at the consensus though at an annualized rate of 1.819 million permits last month.
Outside of housing data, retail sales jumped 0.9% in April meeting analysts estimates following its 1.4% rise in March. Excluding auto sales, retail sales rose only 0.6% but that increase was twice the projected 0.3% rise after a 2.1% hike the previous month. Additionally, Industrial Production increased 1.1% in April while Capacity Utilization increased from 78.2% to 79.0% last month. Lastly, initial unemployment claims rose from 200,000 claims to 218,000 new claims for the week ending May 14.
Fears over inflation cutting into corporate earnings were realized this week with disappointing results from two of the largest retailers in Target and Walmart. Both firms saw their stock price plummet following their earnings reports with TGT dropping 25% and WMT falling more than 10%. Both retailers cited higher costs and supply chain disruptions eating into profits as each company managed to surpass revenue projections but miss on earnings estimates.
Another retailer that saw higher costs lower its profit margins was Kohl’s Corporation (KSS) as they cut their full-year outlook following the miss with the company now expecting full-year 2022 earnings-per-share (EPS) between $6.45 and $6.85 compared to its previous guidance between $7.00 and $7.50.
Meanwhile, leading home improvement retailers, Home Depot (HD) and Lowe’s (LOW), both surpassed earnings estimates. Home Depot managed to beat out revenue estimates and raise its outlook while Lowe’s just barely missed on revenue expectations.
All in all, the S&P 500 fell 2.47%, the Dow Jones Industrial Average dropped 2.90%, and the NASDAQ lost 3.82%.