The market the day before
On May 6, the main American stock markets showed a decline. The S&P 500 adjusted by 0.57% to 4123 points, the Dow Jones lost 0.3%, the high-tech Nasdaq dropped by 1.41%. Most sectors of the S&P 500 index closed in negative territory. The worst dynamics was demonstrated by the communications sector (-2.06%), as well as raw materials (-1.43%). Energy companies showed active growth (+2.98%).
Company news
- NRG Energy (NRG: +9.79%) reported better-than-expected revenue and profit for the first quarter of 2022, but the annual adjusted profit forecast remained unchanged.
- McKesson's quarterly results (MCK: +5.95%) were higher than preliminary revenue estimates, but worse than EPS expectations. Analysts note the strength of the pharmaceutical segment.
- Under Armour (UAA: -23.8%) unexpectedly reported a net loss for the first quarter of 2022 and gave a modest annual profit guidance.
We expect
Investors' attention remains focused on the gradual tightening of global financial conditions. The dollar index and the yield of long-term treasuries continue to grow, and S&P 500 futures are declining to the levels of May 2021. Last week, the central banks of the United States, Great Britain and Australia raised rates, and market participants expect that regulators will continue to take steps to normalize monetary conditions in response to high inflation. Negative sentiment may continue to dominate the market ahead of the release of data on consumer inflation in the United States on May 11. A slight slowdown in the pace of price growth is expected, but the Fed may maintain a "hawkish" attitude, systematically raising the rate by 50 bps at the next meetings to achieve a more pronounced effect. Increasingly, concerns about slowing US GDP growth are being heard in the news headlines. At the same time, it is expected that the US economy will cope with the situation better than the eurozone economy, due to the less intense impact of the consequences of geopolitical instability, which increases the relative attractiveness of the US stock market.
A risk factor for the global economy remains the preservation of the policy of "zero tolerance" for COVID-19 in China: quarantine restrictions for 25 million residents of the city have been tightened again in Shanghai. In this regard, the pressure in the supply chains may persist longer than previously expected by market participants.
- Hong Kong stock exchanges are closed on May 9 due to a national holiday. Japan's Nikkei fell by 2.53%, China's CSI 300 fell by 0.8%. Euro Stoxx 50 has been losing 0.52% since the start of trading.
- Brent crude futures are quoted at $108.9 per barrel. Gold is declining to $1,872 per troy ounce.
In our opinion, the S&P 500 will hold the upcoming session in the range of 4000-4100 points.
Macrostatistics
Important macro statistics are not expected to be published today.
Sentiment Index
The sentiment index dropped to 38.
Technical picture
The S&P 500 is testing support in the range of 4060-4100 points. However, the dynamics of futures indicates a possible breakdown down this level in the coming trading sessions. In this case, the benchmark may rush to the lower border of the designated channel. This possibility is confirmed by the negative news background. RSI and MACD indicate the continuation of the "bearish" trend.
In sight
On May 10, after the close of trading, the report for the first quarter will be published by the operator of the largest crypto exchange Coinbase Global (COIN). The consensus forecast assumes a decrease in revenue by 16% YoY, to $1.48 billion, due to weak growth in trading volume and a decrease from the maximum values of the fourth quarter of 2021, as well as due to a correction in the value of cryptocurrencies. EPS is expected to show a multiple drop to $0.17 (against $3.05 a year earlier) due to the company's plans to expand the staff and increase investments in business development. The introduction of more crypto assets and increased market volatility, combined with increased interest in digital currencies, is predicted to support the activity of users (especially institutional investors) on the platform. The main long-term drivers of the exchange's business development include the launch of the NFT marketplace and the development of the decentralized finance platform DeFi.
On May 11, Walt Disney (DIS), the entertainment industry giant, will present quarterly results. Revenue, according to the consensus forecast, may exceed $20 billion, showing an increase of 29% YoY. Adjusted EPS will increase by 51% to $1.19. Such a significant growth rate is largely due to weak results over the past year, when the resumption of anti-covid restrictions put pressure on the issuer's performance. The factors of support are the restoration of the segments of film distribution, TV advertising, amusement parks and hotels. Last quarter, Disney's results were higher than market expectations. Revenue increased by 34% YoY, exceeding the consensus forecast by 4.8%. The main driver of growth then was the amusement park segment. We believe that this direction will continue to demonstrate faster recovery rates than previously expected, thanks to increased traffic and an increase in average revenue per visitor. Comcast, for example, has already reported "exceptionally high" demand observed at Universal amusement parks in the first quarter. The weak aspect of the issuer's reporting may be the data of the streaming direction. However, Disney's results may still be better than Netflix's, thanks to the summer expansion in 42 new countries in Eastern Europe, Africa and the Middle East. This driver will provide an accelerated expansion of the base of subscribers of the Disney+ service, whose number by the end of September, according to our estimates, is capable of growing to 150-155 million. As of the end of 2021, the audience was almost 130 million.