U.S. stocks got hammered on Friday, 22^nd April 2022, making it 3 weeks in a row of declines with risk-off being the current trend. Markets were affected by corporate earnings and more so by the change in expectations of the Federal Reserve. 

All 3 major indices were down by more than 2%. 

S&P closed -2.8%, the Dow dropped almost 1000 points, while the Nasdaq down 2.55%, is heading for its worst month since 2008. At the close, Nasdaq was down 9% so far in April. 

Tesla’s earnings surprise was not enough to counter the shocker we saw from Netflix’s earnings miss. Netflix was down by more than 30% after it announced that for the first time in years, they lost subscribers and that there could be more losses to come. 

All attention was focused on Federal Reserve officials’ comments. James Bullard says a 75-basis point hike could be an option while Cleveland Fed President Loretta Mester says one outsize move in the funds’ rate does not appear to be the right way to go. Also, Powell’s comments suggested that the next 2 hikes could be 50 basis points each. 

For the week, the Dow finished down by 1.9% in its ninth losing week of the last 11, while the S&P 500 fell 2.8% and the Nasdaq sank 3.8%. 

Here are the closing levels on Friday, 22^nd April 2022: – 

	Last	Change	%Change
Dow Jones	33,811.40	-981.36.	-2.82%
S&P 500	4,271.78	-121.88.	-2.77%
Nasdaq Comp	12,839.29	-335.36.	-2.55%
U.S. 10Y	2.90%
VIX	28.21	+5.53	+24.38%

It was a painful week for dip buyers who at one point thought they could close out the week in positive territory. However, the fear of a more aggressive Fed crept back into the markets with the realization that bigger hikes would be most likely. 

Additionally, Nomura Holdings Inc. now expects the Federal Reserve to lift interest rates by 75 basis points at both its June and July meetings. That said, this might be a move that would follow up on an expected 50 basis point hike in May. 

While this is a big call, the message coming from the fed will make more economists like Nomura change their predictions to be a little more aggressive.    

The volatility in both the bond and stock markets will probably continue in the near term making equity markets risky. 

And not to forget the Russian invasion, which now is indicating that Moldova could be the next target, will add to the weak sentiment going forward. 

The orderly selling we have seen probably means that investors are holding back a little, hoping for a bounce. Nobody wants to be seen as panic sellers only to have the market bounce in their face. It is possible that there could be more selling to come if we do not get a bounce anytime soon. Until we get comfortable with higher yields, be prepared for the possibility of new lows for the year. 

Source: CBOE, Bloomberg, Federal Reserve 

This commentary is written by James Gomes 
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years. 

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