By John Meyer, financial consultant. Eurasia Business News, May 14, 2022

Dow Jones Stock Exchange, Manhattan, New York City- Photo credit : Swann Collins.

The New York Stock Exchange closed sharply higher on Friday thanks to a technical rebound at the end of a nightmare week, with investors doubting the worst is over.

The Dow Jones gained 1.47%, the Nasdaq index gained 3.82% and the broader S&P 500 index rose 2.39%.

Traders are now engaged in a bold “bargain hunt“, favouring the most damaged stocks on the Nasdaq. Yet the narrative hasn’t really changed. The U.S. Federal Reserve will have to aggressively tighten its monetary policy in order to effectively combat persistently extremely high inflation, at the risk of further accentuating an already tangible economic slowdown.

For analysts at Wells Fargo, Wall Street offered itself “a pause in the form of an upside“, after five consecutive negative sessions of the Dow Jones and a new drop in the Nasdaq. This is a technical rebound, according to them, several technical thresholds having been exceeded downwards.

We needed it but it may not be very significant yet,” said Gregori Volokhine, president of Meeschaert Financiel Services. “It would take several sessions of rise to say that the worst is behind us and that, frankly, would surprise me.”

Despite these gains on Friday, the S&P 500 and Nasdaq recorded their sixth week of decline, their longest loss period since the fall of 2012 for the S&P 500 and spring 2011 for the Nasdaq. On the week, the Dow Jones remains in a down 2.13%, while the Nasdaq gives up 2.79%.

The mood was playful on Friday and the VIX index, which measures market volatility, fell to its lowest level in a week.

With the ray of sunshine that bathed Wall Street, the outcasts of the coast were at the party, after days or weeks of serving as painkillers in the market.

Roblox (+15.36%), Rivian (+9.88%), Snap (+8.70%), Netflix (+7.65%) and AMD (+9.26%) were searched by traders and investors.

In this climate of bargain hunting, even the heavyweights of the stock market have jumped, in the first place Apple (+3.19% to $ 147.11), which had reached the day before its lowest level in eight months.

Even GameStop (+9.85%), Peloton (+16.52%) or Shopify (+13.85%) benefited from the aspiration.

Among the biggest performances on Friday, we find the same stocks (‘viral’ stocks like GameStop) and low-quality stocks. It means that it’s a lot of covers of ‘shorts’ and that it’s not enough yet to give the sign of a real rebound on the stock markets.

In addition to cheap purchases, the session was thus fueled by the hedging operations of speculative traders, who after betting in recent weeks on the downside on stocks or indices (or “shorted”), have picked up the bet to make gains.

Tech stocks was also supported by some good results, notably those of the credit payment specialist for e-commerce Affirm (+31.43% to $23.71), whose quarterly revenue came out better than expected and the loss lower than expected.

As for the shared office specialist WeWork (+20.07% to $ 6.76), it reduced its loss in the first quarter and piper Sandler analysts estimated, in a note, that the group was getting closer to profitability.

Another take-off was that of the online trading platform Robinhood (+24.88% to $ 10.69), which benefited from the announcement of an investment by the blockchain entrepreneur Sam Bankman-Fried. The CEO of crypto exchange FTX, has taken a 7.6% stake in Robinhood, according to a Thursday filing with the Securities and Exchange Commission.

Friday also marked a new episode of the Twitter saga. Twitter fell after Elon Musk announced that the operation to buy the social network for $ 44 billion (42.4 billion euros) was “temporarily suspended” pending data on the proportion of fake accounts of the company, which would be less than 5% of the total, as the bluebird group claims.

The tech tycoon Elon Musk and the leadership of the social network Twitter reached an agreement last month on the sale of the social media service to the CEO of Tesla and SpaceX for $ 44 billion.

After diving into electronic trading prior to the opening of Wall Street, the stock recovered a little but still ended down 9.67% to $ 40.72, supported by a new tweet from Elon Musk: “still committed to this acquisition”.

Twitter is now worth 25% less than the price proposed by Mr. Musk, which testifies to the doubts of many investors about the success of the operation.

By effect of communicating vessels, the Tesla share, of which Elon Musk is at the head, offered itself a rise (+5.71% to 769.59 dollars). The stock had lost more than 23% over the previous six sessions.

Impact of monetary policy

Markets are anticipating a series of monetary hikes this year that will push overnight rates to 3% by 2023 to tame inflation.

The U.S. Federal Reserve raised interest rates on May 4, by the most in over 20 years. In a rare move, the U.S. Federal Reserve approved a 0.50% interest rate increase and announced plans to shrink its $9 trillion asset portfolio starting next month, in an effort to tackle a 8.5% inflation in annual terms, a record since January 1982. The moves, announced after a two-day policy meeting of central bankers Wednesday, will raise the Fed’s benchmark federal-funds rate to a target range between 0.75% and 1%.

The Bank of England also announced on May 4 an increase in its base interest rates by 0.25 percentage points to 1 percent after the U.K.’s annual inflation hit a 30-year high of 7 percent in March. Inflation in the U.K. is expected to peak at around 10 percent in the fourth quarter.

In bond markets, the US 10-year yield reached  2.928% on Friday, after 2.84% on Thursday, the level of December 2018. The China 10 Years Governement Bond has now a 2.829% yield, while the France 10 Years Government Bond has a 1.451% yield as of May 2. The Germany 10 years Government Bond has a 0.939% yield as of May 14.

Gold prices are decreasing

Gold prices have been surging between January and April, amid geopolitical tensions and inflation worries in Europe and the United States. At closure, gold prices were $ 1,813 per troy ounce, on May 13, 2022 16:59 NY Time, after a day high of $ 1,829.

On May 2, gold prices hit a high $ 1,888 per troy ounce and was at $ 1,864.60 at 06:17 PM NY Time. On March 8, in the morning, gold prices crossed $ 2,000 per troy ounce, hitting $ 2,039 per troy, a record since August 2020.

Gold prices are going down on the past month as some investors look at the dollar, as the U.S. paper currency is driven by bets that the U.S. Federal Reserve will announce aggressive rate hikes in 2022 and 2023. Gold is indeed sensitive to rising U.S. interest rates, which increase the opportunity cost of holding the precious metal.

Read also : How to invest in gold

Gold is a good asset in tough times. In almost any crisis, it shows growth. The yellow metal has always been a great hedge against inflation because it rises in price when the cost of living standards rises. 

Thank you for being among our readers.

Our community already has nearly 60,000 followers !

Sign up to receive our latest articles, it’s free !

Support us by sharing our posts !

Follow us on Facebook and Twitter

© Copyright 2022 – Eurasia Business News