The U.S. stock market symbolically bounced back in Friday’s trading after a fairy tale six months of results. The Dow Jones and S&P 500 added just over one percent. The Nasdaq was up 0.9 percent.
Regardless, the weekly numbers don’t allow for a relaxing weekend, and remind us that the market is in a bearish phase of its fortunes. The Dow Jones’ modest 1.3% drop through the end of the five-day period was more than made up for by a nearly 7% drop in the broad market index and a 4% loss in the Nasdaq Composite.
The essence of Friday’s rise is evidenced by the growth leaders themselves, the list of which in the DJIA was led by such classic defensive securities as McDonalds (MCD) +2.46% and Coca-Cola Company (KO) +2.33%. Besides eating and drinking, Americans were concerned about national defense, so the top three best performers are Boeing (BA) +2.28%, a manufacturer of not only civilian aircraft, but also a wide range of military equipment.
The building of the New York Stock Exchange. Photo: Reuters
Investors remembered about shares of Big Tech, which was lying somewhere on the periphery. Against this backdrop, its representatives such as Amazon (AMZN) +3.15%, Apple (AAPL) +1.62% and Microsoft (MSFT) +1.07% were up.
Micron Technology Outlook Embarrassed Chipmakers
Lest anyone forget, the bears took a showdown in the semiconductor sector amid a disappointing financial outlook for Micron Technology (MU) -2.95%. The company cut its revenue forecast for the current quarter from $9 billion to $7.2 billion amid an estimated 5% drop in smartphone sales and a 10% drop in personal computer sales in the second half of the year.
Micron is a supplier to consumer electronics giants like Apple, Motorola and Asus, so it has plenty of insight into industry trends. And the company’s forecast is a strong indication that the PC and smartphone market may be on the verge of a serious implosion after two years of “quarantined” demand. If you translate the percentages into units, the market may be missing purchases of 130 million smartphones, and 30 million computers.
After such news, it was a sin for sellers not to take advantage of the situation, and not to establish their dictatorship in the chipmaker’s stock. More than 4% of capitalization was washed off in shares of Nvidia (NVDA), more than 3% were losses in securities of Advanced Micro Devices (AMD), Qualcomm (QCOM) and Texas Instruments (TXN). Well, a 5% hit in Applied Materials (AMAT) looks like a fat point in Friday’s bearish receipt.
good old-fashioned way, the U.S. retail sector continues to pummel investors. Passions have yet to die down after Bed Bath & Beyond’s (BBBY) quarterly earnings report, as another corporate news story brought down Kohl’s Corporation (KSS) securities, which plummeted nearly 20%.
First, the company significantly cut its quarterly financial outlook amid declining consumer activity, and second, it announced it was ending negotiations to sell its business, citing an unfavorable industry environment at this time for such deals.
Oil had little effect on oil workers’ securities
More than 2.5% gain on Friday for oil futures contracts. West Texas Intermediate (WTI) is back above $108 per barrel. The price of North Sea oil benchmark Brent exceeded $111. At the same time shares of energy companies were rather weak against this background. Only ExxonMobil (XOM), Occidental Petroleum (OXY), Phillips 66 (PSX) and Marathon Petroleum added more than 2%. Chevron (CVX), ConocoPhillips (COP) and EOG Resources (EOG) added more than a percent, while Hess (HES) and Cheniere (LNG) closed negative.
Dow Jones and S&P 500 with recession is a different matter
Analysts and economists continue not only to evaluate the half-year and quarterly results, but also try to model some probabilistic trends. The S&P 500 Index’s first-half record has further divided optimists and supporters of a conservative assessment of the current situation. The former cite historical examples of market recovery after the fall, while the latter are also trying to rely on more extended data.
In light of the Fed’s aggressive policy, a more interesting sample will be not statistics on declines as such, but market movements accompanied by a recession. Wells Fargo Investment Institute analysis shows that such periods lasted on average 20 months and brought negative returns of nearly 38%.
Bear markets outside a recession lasted an average of half a year. That’s almost as long as we currently have during 2022, and brought an average “return” of minus 29%. Collectively, the average bear market lasted about 16 months and delivered a negative return of 35%.
Bank of America’s analysts went even further. Quite literally. According to them, the government bond market is going through its toughest times since 1865. And the U.S. stock market, adjusted for inflation, is on its way to the situation of 1872.