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Daily Market Report | May 9, 2022

US FINANCIAL MARKET

Stocks Slide, Extending Year’s Losses – Wall Street Journal, 5/9/2022

  • A broad selloff in U.S. stocks accelerated Monday, leaving investors with few places to shelter from the market’s tumult.
  • The S&P 500 fell 1.9%, adding to losses after closing out its longest streak of weekly declines since 2011.
  • The Nasdaq Composite tumbled 2.1% and the Dow Jones Industrial Average shed 494 points, or 1.5%, to 32405.
  • Investors are questioning whether the Fed will be able to pull off its planned course of interest-rate increases and cuts to its balance sheet without tipping the economy into recession.
  • That financial tightening has added to fears of a slowdown in global growth.
  • China’s implementation of lockdowns and other measures to contain the spread of Covid-19 and Russia’s war against Ukraine have bolstered concerns of supply-chain disruptions and reduced consumer spending.
  • Selling hit all 11 sectors of the S&P 500 on Monday, dragging lower everything from shares of manufacturers to bank stocks to even energy producers, a relative bright spot this year.
  • Technology stocks were among the biggest decliners in the market. Facebook parent Meta Platforms fell 2.7%, while Amazon.com lost 2.5% and Apple shed 2.5%.
  • Technology stocks have been particularly hard hit by this year’s selling because rising rates have made some investors reluctant to put money in parts of the market that look expensive.
  • Industrial stocks took a hit as well. Many investors are worried that rising inflation, tightening monetary policy and continued supply-chain disruptions around the world will weigh on economically-sensitive sectors.
  • The yield on the benchmark 10-year Treasury note was at 3.122% on Monday, compared with 3.124% on Friday.
  • The 10-year yield had risen 1.6 percentage points since the end of 2021 through Friday, leading some investors to reassess the valuations of technology and growth stocks. Bond yields rise when prices fall.
  • Overseas, the pan-continental Stoxx Europe 600 fell 2%, led by declines in the travel and leisure and technology sectors.
  • In Asia, Japan’s Nikkei 225 dropped 2.5% on Monday, while Australia’s S&P/ASX 200 fell 1.2%.
  • China’s CSI 300 index, tracking the largest companies listed in Shanghai or Shenzhen, declined 0.8%. Hong Kong markets were closed for a public holiday.

Palantir profit miss, downbeat revenue forecast send shares tumbling – Reuters, 5/9/2022

  • Palantir Technologies forecast second-quarter revenue below Wall Street expectations on Monday, indicating slowing sales growth, and missed first-quarter profit estimates, sending shares down 15% in premarket trading.
  • Palantir reported first-quarter revenue of $446.4 million, above Refinitiv IBES estimates of $443.4 million, driven by strength in its U.S. commercial business.
  • But slowing revenue growth at the software maker’s government business, which rose 16% in the first quarter, also raised concerns. Although that’s better than the 6% growth analysts expected, it’s the slowest quarterly growth for the segment.
  • Palantir expects government revenue to increase through the rest of the year.
  • Sales from U.S. companies were a bright spot in the first quarter. They more than doubled from a year earlier.
  • Globally, commercial sales grew 54% to $204.5 million, blasting past analysts’ estimates, data compiled by Bloomberg shows.
  • Excluding items, it earned 2 cents per share, missing estimates of 5 cents per share. COO Sankar said the company saw 2 cents of loss per share related to Palantir’s investments.
  • The company expects second-quarter revenue to be $470 million, implying a growth of just 25% year-over-year, compared with 49% growth a year earlier. Analysts on average expected a revenue of $483.9 million.
  • Palantir forecast adjusted operating margin of 20% for the current quarter, compared with 31% a year earlier, as it ramps up spending on its salesforce to help the company close more deals.

U.S. Tyson Foods raises annual sales forecast on higher meat prices – Reuters, 5/9/2022

  • Tyson Foods raised its full-year sales outlook on Monday after soaring meat prices helped the U.S. processor beat quarterly revenue and earnings estimates.
  • Quarterly sales rose to $13.12 billion in the quarter from $11.30 billion a year earlier, beating expectations of $12.85 billion.
  • Tyson said average prices for its beef in the quarter that ended on April 2 climbed by 23.8% from a year earlier, while chicken prices increased by 14.4% and pork prices rose 10.8%.
  • Sales volumes were nearly flat in the beef and chicken sectors and dropped 4.8% in the pork business, according to the company.
  • Tyson reported adjusted earnings per share of $2.29, above expectations for $1.91.
  • Tyson, based in Springdale, Arkansas, now expects annual sales between $52 billion and $54 billion, compared with its prior estimate for the upper end of a $49 billion to $51 billion range.
  • Analysts on average expect a figure of $51.79 billion, according to Refinitiv IBES data.

Coty lifts annual profit forecast on resilient demand for luxury cosmetics – Reuters, 5/9/2022

  • Cosmetics maker Coty raised its full-year profit outlook on resilient demand for its high-end fragrances and skincare products even at a time inflation in most countries has soared to multi-year highs.
  • Revenue at Coty’s prestige division, that houses cosmetics and fragrances from the Hugo Boss, Gucci and Burberry brands, rose 21% to $726.4 million for the third quarter ended March 31.
  • Coty, which has also raised prices to combat higher costs, saw its gross margin rise to 64.3%.
  • On an adjusted basis, the company earned 3 cents per share in the reported quarter, beating estimates of a profit of 1 cent per share, according to Refinitiv IBES data.
  • The CoverGirl cosmetics maker increased its adjusted earnings per share forecast for fiscal 2022 to between 23 cents and 27 cents, from its previous outlook of 22 cents to 26 cents.

U.S. profit forecasts weaken as companies assess inflation risks – Reuters, 5/9/2022

  • With first-quarter U.S. earnings in the final stretch, corporate growth expectations for the current quarter and 2022 mostly are declining as costs surge for oil and other supplies and interest rates rise.
  • As of Friday, analysts had lowered their overall forecast for S&P 500 second-quarter profit growth to 5.6% from 6.8% at the start of April, while the full-year forecast has held at 8.8%, based on Refinitiv data.
  • The 2022 growth estimate, however, drops to about 5% without the energy sector’s growth – a sizeable impact for a sector that accounts for just 4% of the S&P 500’s market capitalization.
  • Since the start of April, estimated 2022 S&P 500 energy sector earnings growth has gone up to about 93% from about 65%, per Refinitiv data.
  • Over that same period, the 2022 S&P 500 consumer discretionary earnings growth forecast has gone down to about 7% from 17%.

Day Trader Army Loses All the Money It Made in Meme-Stock Era – Bloomberg, 5/9/2022

    • Nursing losses in 2022 that are worse than the rest of the market’s, amateur investors who jumped in when the lockdown began have now given back all of their once-prodigious gains, according to an estimate by Morgan Stanley.
    • The calculation is based on trades placed by new entrants since the start of 2020 and uses exchange and public price-feed data to tally overall profits and losses.
    • There are signs that the day-trader crowd is souring on the market.
    • In April, retail investors snapped up $14 billion in stocks, the second-slowest uptake in any month since late 2020, Morgan Stanley data show.

Millions of Americans Are Turning to Therapy, and Investors See an Opportunity – Wall Street Journal, 5/9/2022

  • Venture capitalists and private-equity firms are pouring billions of dollars into mental-health businesses, including psychology offices, psychiatric facilities, telehealth platforms for online therapy, new drugs, meditation apps and other digital tools.
  • Nine mental-health startups have reached private valuations exceeding $1 billion last year, including Cerebral and BetterUp.
  • In the first year of the pandemic, prevalence of anxiety and depression increased by 25%, the World Health Organization said in March. About one-third of Americans are reporting symptoms of anxiety or depression, according to the Centers for Disease Control and Prevention.
  • The number of behavioral-health acquisitions jumped more than 35% to 153 in 2021 versus the previous year, and of those, 123 involved private-equity firms, according to Mertz Taggart. In the first quarter of this year, there were 41 acquisitions, of which 30 involved PE firms.
  • Investors poured $5.5 billion into mental-health technology startups globally last year, up 139% from 2020, according to a report by CB Insights, an analytics firm. Of that, $4.5 billion was spent on U.S. firms.

Rivian Tumbles as IPO Lockup Expiration Means Ford, Amazon Can Finally Sell – Bloomberg, 5/9/2022

  • Shares of Rivian Automotive are tanking more than 15% as some early stakeholders get their first chance to unload shares on Monday.
  • About 720 million Rivian shares are estimated to have become eligible for sale as the market opened.
  • The company had a float of about 182.5 million shares as of April 11, according to Bloomberg data.
  • Amazon owns about 17.7% of Rivian, while Ford owns 11.4%.
  • On Saturday, CNBC’s David Faber tweeted that Ford plans to sell eight million Rivian shares through Goldman Sachs.

Hospitals Look to Raise Treatment Costs as Nurses’ Salaries Increase – Wall Street Journal, 5/9/2022

  • Some hospitals grappling with rising nurse salaries are seeking to raise prices by up to 15%, touching off contract fights with health insurers and businesses and threatening higher premiums.
  • HCA Healthcare and Universal Health Services are among the hospitals asking health plans to pay them more for care to offset mounting nurse costs.
  • The requests are more than the 4% to 6% price increases that hospitals typically seek, according to employers and insurers.
  • The hospitals usually won an average 3% price increase in recent years, according to Altarum, a nonprofit that does healthcare research.

US ECONOMY & POLITICS

Fed’s Bostic Says No Need to Move Faster Than Half-Point Hikes – Bloomberg, 5/9/2022

  • Federal Reserve Bank of Atlanta President Raphael Bostic said he favors policy makers continuing to raise rates by half-point increments rather than doing anything larger.
  • A half-point hike ‘’is already a pretty aggressive move,” Bostic told Michael McKee in an interview on Bloomberg Television on Monday.
  • “I don’t think we need to be moving even more aggressively. I think we can stay at this pace and this cadence and really see how the markets evolve.”
  • While a number of economists have predicted Fed tightening to counter inflation would inevitably result in a U.S. economic recession, Bostic said he was a “worried optimist” and that today’s unique circumstances following a once-in-a-century pandemic made predictions especially difficult.
  • Moreover, the U.S. just added more than 400,000 jobs last month, which would have been “a reason for celebration” in prior years, he said.

U.S. Targets Russian Media, Bank Executives With New Sanctions – Wall Street Journal, 5/9/2022

  • The Biden administration announced new sanctions targeting Russian state-controlled media and banking executives, a ban on Americans providing accounting and management-consulting services and new export controls targeting the country’s industrial sector.
  • The package will seek to clamp down on advertising dollars flowing into three Russian television stations, bar U.S. consulting firms from providing services to Russian companies seeking to evade sanctions and limit Russia’s access to industrial engines, motors and bulldozers.
  • It also targets more than 2,600 Russian and Belarusian military, including personnel involved in alleged war crimes in Bucha.
  • The U.S. also will sanction banking executives from Sberbank, the largest financial institution in Russia, and Gazprombank, a Russian bank that facilitates business by Russia’s Gazprom, one of the world’s largest natural-gas exporters, the administration said.
  • The U.S. and its European allies have imposed a widening array of economic penalties on Russia in punishment for its invasion of Ukraine.

Pentagon’s China Warning Prompts Calls to Vet U.S. Funding of Startups – Wall Street Journal, 5/9/2022

  • Congress may soon require government agencies to vet tech startups seeking federal funding, after a Defense Department study found China is exploiting a popular program that funds innovation among small American companies.
  • The study, which was viewed by The Wall Street Journal, found China is using state-sponsored methods to target companies that have received Pentagon funding from the Small Business Innovation Research program.
  • The April 2021 report, which has been circulating among lawmakers on Capitol Hill, details eight case studies it says have “national and economic security implications.”
  • The studies include examples of program participants who dissolve their American companies, join Chinese government talent programs and continue their work at institutions that support the People’s Liberation Army, the armed wing of the Communist Party.
  • The report also documents instances of SBIR recipients taking venture-capital money from Chinese state-owned firms and of working with Chinese entities that support the country’s defense industry.
  • The report concludes that the SBIR program needs a due-diligence process to identify entities of potential concern that would then receive a more detailed review.

EUROPE & WORLD

China’s Trade Slows as Demand Drops and Covid Lockdowns Hit Supply Chains – Wall Street Journal, 5/9/2022

  • China’s trade with the rest of the world withered in April as Covid-19 lockdowns shut factories and crippled supply chains, adding to signs of a broad slowdown in the world’s second-largest economy.
  • China’s exports rose 3.9% from a year earlier in April, data from China’s customs bureau showed Monday, tumbling from 14.7% growth a month earlier.
  • Imports were flat in April from a year earlier, easing from a 0.1% decline in March. That was a better performance than the 3% decline expected by the polled economists.
  • Compared with March, however, exports fell 0.9% in April, while imports dropped 2.7%, highlighting the pinch on trade as lockdowns reached important cities like Shanghai.
  • In a survey of 121 of its members conducted in late April and early May that was published Monday, the American Chamber of Commerce in China said more than half have delayed or reduced investment in China in response to the latest Covid-19 outbreaks and 58% expect revenue this year to be weaker than forecast.
  • Almost 60% of those surveyed said they are still not operating at full capacity, citing staffing shortages and logistical difficulties.

‘Like a prison’: Shanghai, Beijing ratchet up COVID restrictions – Reuters, 5/9/2022

  • China’s two largest cities tightened COVID-19 curbs on Monday, fueling public angst and even questions about the legality of its uncompromising battle with the virus that has battered the world’s second largest economy.
  • In Shanghai, enduring its sixth week of lockdown, authorities have launched a new push to end infections outside quarantine zones by late May, according to people familiar with the matter.
  • While there has been no official announcement, residents in at least four of Shanghai’s 16 districts received notices at the weekend saying they wouldn’t be allowed to leave their homes or receive deliveries, prompting a scramble to stock up on food.
  • In a stark sign of the stresses for business, China’s auto association estimated that sales last month dropped a staggering 48% year-on-year as COVID restrictions shut factories and crimped domestic demand.
  • China is adamant that it will stick to its zero-COVID policy to fight a disease that first emerged in the city of Wuhan in late 2019, warning against criticism of a policy they say is saving lives.

China Premier Warns of ‘Grave’ Jobs Situation Amid Lockdowns – Bloomberg, 5/9/2022

  • Chinese Premier Li Keqiang warned of a “complicated and grave” employment situation as Beijing and Shanghai tightened curbs on residents in a bid to contain Covid outbreaks in the country’s most important cities.
  • Li instructed all government departments and regions to prioritize measures aimed at helping businesses retain jobs and weather the current difficulties, according to a late Saturday statement, which cited the premier’s comments in a nationwide teleconference on employment.
  • The premier’s warning on employment came after the nation’s surveyed jobless rate climbed to 5.8% in March, the highest since May 2020, according to data released by the National Bureau of Statistics.
  • High-frequency indicators tracking jobs suggest a further deterioration in the labor market in April.
  • Both Shanghai and Beijing increased restrictions on their residents Sunday to achieve the Covid Zero goal, with authorities in the financial hub stepping up efforts to quarantine close contacts of people testing positive for the virus.

Chinese Companies Boost Returns to Shareholders – Wall Street Journal, 5/9/2022

  • Chinese companies like Alibaba Group Holding are embracing buybacks and one-off dividends, handing cash to shareholders as they seek to shore up their battered stock prices and signal confidence in the long-term outlook.
  • As of May 5, 128 companies had bought back the equivalent of about $2.6 billion of stock in Hong Kong so far this year, more than double the tally in the same period a year earlier, Wind data show.
  • The Wind figures reflect actual repurchases, rather than potential program totals. For all of 2021, the figure was nearly $5 billion, a record for the market.
  • JD.com last week said it would pay a special cash dividend totaling about $2 billion to holders of its American depositary receipts and its Hong Kong-listed shares, after late last year boosting its existing buyback program to $3 billion. Meanwhile, the offshore oil giant Cnooc said on April 28 it would pay an anniversary special dividend of 1.18 Hong Kong dollars per share, or the equivalent of about $0.15. That is a sizable payout for a company whose stock closed the same day at HK$10.84 per share.
  • Alibaba boosted its buyback program by $10 billion to a maximum of $25 billion in March. Others introducing or expanding similar plans include smartphone maker Xiaomi, fast-food giant Yum China Holdings, car maker BYD and smaller technology companies such as Bilibili, Vipshop Holdings and Weibo.

Russia’s Economy Facing Worst Contraction Since 1994 – Bloomberg, 5/9/2022

  • Russia is facing the deepest economic contraction in nearly three decades as pressure from sanctions imposed by the U.S. and its allies mounts, according to an internal forecast by the Finance Ministry.
  • Gross domestic product is likely to shrink as much as 12% this year, deeper than the 8% decline expected by the Economy Ministry, according to people familiar with the estimates who spoke on condition of anonymity to discuss internal deliberations.
  • The Finance Ministry’s figure would put the economic pain on par with the turmoil seen in the early 1990s, when Russia’s Soviet-era economy lurched toward capitalism with a contraction not seen since wartime.
  • If the Finance Ministry’s forecast proves accurate, that would erase about a decade of economic growth, according to one person familiar with the forecasts.

Sri Lanka prime minister resigns, curfew imposed after clashes – Reuters, 5/9/2022

  • Sri Lanka’s prime minister resigned on Monday to make way for a unity government to try to find a way out of the country’s worst economic crisis in history, but protesters said they also wanted his brother to stand down as president.
  • Prime Minister Mahinda Rajapaksa’s resignation came hours after clashes broke out in the commercial capital Colombo, where supporters of the ruling party stormed an anti-government protest camp and were beaten back by police using tear gas and water cannon.
  • A nationwide curfew has been now been imposed, on top of the state of emergency that Sri Lankan President Gotabaya Rajapaksa – the prime minister’s younger brother – declared last week in the face of escalating protests.
  • The island nation of 22 million people has suffered prolonged power cuts and shortages of essentials, including fuel, cooking gas and medicines, and the government is left with as little as $50 million of useable foreign reserves.

BioNTech’s Q1 vaccine sales triple but it still flags full-year decline – Reuters, 5/9/2022

  • BioNTech’s first-quarter sales and earnings more than tripled thanks to demand for the COVID-19 vaccine it developed with Pfizer, but the German biotech firm is still forecasting a full-year decline in vaccine sales.
  • Quarterly revenues more than tripled from a year earlier to 6.37 billion euros ($6.73 billion), as did net income, to 3.70 billion euros, the company said on Monday.
  • BioNTech stood by its 2022 vaccine revenue guidance of 13 to 17 billion euros, down from 19 billion last year, implying a decline during the rest of the year.
  • As previously, BioNTech based its guidance only on firm 2022 orders, which were unchanged at about 2.4 billion doses from a March estimate.

Factmonster – TODAY in HISTORY

  • Mother’s Day became a public holiday. (1914)
  • Fascist Italy annexed Ethiopia. (1936)
  • The Beatles signed their first recording contract and hired George Martin to be their producer. (1962)
  • The South African parliament chose Nelson Mandela as president. (1994)
  • Chechnya’s Moscow-backed leader, Akhmad Kadyrov, was killed in a bombing. Six others were killed and another 60 wounded. (2004)

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