After Bumpy End to Week, Investors Look Ahead to Monday

Investors are licking their wounds after the Dow Jones Industrial Average suffered its worst declines in eight months, with all 30 member stocks closing in the red. The Dow shed 533 points last week, losing close to 2% of its value after the Federal Reserve revealed its intentions to tighten monetary policy in the medium-term, which is sooner than the markets were hoping for and spooked investors.

The S&P 500 and Nasdaq similarly ended Friday on a sour note even after reaching record highs earlier in the week. The S&P 500 lost almost 2% last week while the Nasdaq was only down fractionally.

More Selling to Come, Says Economist

Mark Zandi, an economist at Moody’s, has an ominous warning, forecasting that stocks could have further to fall. He is predicting that the Fed’s hawkish tone will result in a stock market decline of between 10-20%. In addition to the Fed, Zandi blames lofty valuations. Worse, he doesn’t foresee an end to the pain anytime soon, suggesting that a market recovery could be as long as a year away.

Even meme stocks, which have been the champions of the stock market, couldn’t escape the selling pressure on Friday.

• AMC Entertainment traded close to USD 65 per share on Friday only to finish the session down 2.4% to below the USD 60 level.
• GameStop, another meme-stock darling, closed down a steeper 4.3%.
• BlackBerry shed 4.5%. The company plans to release its Q1 fiscal 2022 earnings results on Thursday.

Other companies on deck for earnings include Nike, Darden Restaurants and FedEx, which are also expected to report their results on Thursday. As of Sunday evening, stock futures are continuing with Friday’s theme and are trading in the red.

Look Ahead

While Monday is quiet on the economic data front, the week will have more in store. On Tuesday, existing home sales for May will be released. While there is robust demand for property, the supply pipeline has failed to keep pace amid a slowdown in construction due to a shortage of workers and materials, according to a Wells Fargo report. There has also been a lingering effect from the pandemic affecting resales, as homeowners have shown a reluctance to sell their homes during the health crisis.

While Jerome Powell has already spoken, this week will be filled with commentary from other Fed speakers, who also have the ability to move the markets. On Monday, the speakers include:

• St. Louis Fed President Bullard
• Dallas Fed President Kaplan
• New York Fed President John Williams

All eyes will also be on personal income and spending, the data for which will be released on Friday.