Equity Indices Including S&P 500 Remain Vulnerable as Inflation Near 40-Year Highs

Author: Finscreener

Estimated read time: 4 minutes

Publication date: 13th Feb 2022 23:01 GMT+1

Major equity indices continued to move lower in the last week as inflation numbers touched 40-year highs. The S&P 500 Index is now down almost 8% from all-time highs, while the NASDAQ and Dow Jones are trading 14% and 5% below record highs respectively.

Investors should expect stocks to remain volatile in the next week too, due to rising tensions between Ukraine and Russia as well as the threat of multiple interest rate hikes by the Federal Reserve to combat inflation.

Bond yields also ended higher on Thursday as the consumer price index or CPI surged by 7.5% year over year in January 2022. Comparatively, Dow Jones expected inflation of 7.2% in the last month, which was the highest since February 1982. Even after accounting for gas prices and grocery costs, the CPI rose by 6.9% compared to estimates of 5.9%.

In an interview with CNBC, the chief investment officer at Bleakley Advisory Group, Peter Boockvar explained, “I think the Fed is keeping everyone on edge, and this is going to add to that edginess. So we had a three-week earnings respite from the macro. We turned micro, and this week we were reminded earnings season is pretty much over and all macro issues matter again.”


Major S&P 500 earnings this week

The Federal Reserve will be releasing the minutes from the previous meeting this Wednesday. Investors will be waiting anxiously to see if the regulatory authority will aggressively increase interest rates to combat inflation.

Further, the producer price index numbers will be out on Tuesday, giving investors another peek into, you guessed it right, inflation. Given rising prices, consumer spending might experience a decline, making retail sales data releasing on Wednesday, all the more important.

While macro-economic data will weigh heavily on the markets, major companies on the S&P 500 including Cisco (NASDAQ: CSCO), Nvidia (NASDAQ: NVDA), Walmart (NYSE: WMT), and Deere (NYSE: DE) will be reporting earnings this week. The earnings call will be followed closely as companies will be looking to pass prices onto consumers in the upcoming quarters.


Splunk, Affirm, and Zillow among major movers

Shares of SaaS (software-as-a-service) company, Splunk (NASDAQ: SPLK) moved higher by 11% in after-hours trading on Friday after a report from Wall Street Journal stated Cisco made an acquisition bid to buy the former for more than $20 billion. Splunk’s sales in the last 12-months stood at $2.5 billion and is forecast to report sales of $2.55 billion in fiscal 2022 and $3 billion in fiscal 2023.

The company’s suite of products has gained popularity in recent years for identifying security threats. Cisco already leads the global enterprise security market making Splunk an ideal acquisition which will also be its largest-ever buyout.

Under Armor (NYSE: UA) shares were down 12.5% on the back of supply chain issues which impacted the company’s outlook. It also warned that higher freight expenses will weigh on the bottom line going forward.

Shares of household products manufacturer Newell Brands (NASDAQ: NWL) surged by 11% as it beat Wall Street earnings and revenue estimates and provided an upbeat earnings forecast. Its adjusted earnings for the most recent quarter stood at $0.42 per share, compared to estimates of $0.10 per share.

Fintech company Affirm (NASDAQ: AFRM)lost over 20% in market value after several analysts downgraded the stock on the back of a tepid outlook and a massive earnings miss.

Shares of Zillow Group (NASDAQ: Z) were up 12.6% after it reported better than expected losses for Q4 of 2021 and beat revenue forecasts as well.

GoDaddy (NYSE: GDDY) shares were up close to 9% after its beat earnings and revenue forecasts as well as announced a share buyback program worth $3 billion. In Q4, its adjusted earnings per share stood at $0.52 compared to estimates of $0.41.

The market cap of online review company Yelp (NYSE: YELP) also moved higher by 4% after its adjusted earnings stood at $0.30 per share, compared to estimates of $0.14 per share. Yelp also beat top-line estimates on the back of strong ad sales.

Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.