Another turnaround is likely on Tuesday after a raft of worries, including stagflation, dragged the S&P 500 SPX below 4,000 for the first time since 2021.
Michael O’Rourke, chief strategist at JonesTrading, thinks another day of a tough sell-off for the S&P could be a sign as investors try to regroup from the worst three-day stock move in two years. good thing.
He told clients that entering “bear market territory” — typically defined as a 20% drop from a recent high — would see the S&P recover technically ahead of Wednesday’s CPI data. The data showed that inflation peaked at 8.5% in March — 8.1% expected — should give “a psychological boost to the stock market,” O’Rourke added.
AllianceBernstein analysts who called us today said the key to downside protection in a market facing persistent and higher inflation is “having a name that has pricing power.” Heading into the second half of 2022, they provided an update on popular strategies for the past year or so, as well as a list of new companies that fit the bill.
“We use gross margin to define pricing power because a company’s ability to increase revenue in the face of rising costs helps us determine which companies can effectively pass on the increased expenses to consumers,” said Bernstein, led by Ann Larson Analyst team wrote.
The Bernstein Pricing Power Indicator ranks companies based on their ability to manage or improve gross margins. Included in the calculation is gross margin growth over the past two years, as well as gross margin stabilization over the past seven years. These metrics are normalized across industries to obtain a final pricing power score, where return on equity rather than gross margin is used for financials.
“Using this approach, we found that stocks in the top quintile of our pricing power measure consistently outperformed the bottom quintile during periods of U.S. inflation. On average, outperformed about 430 stocks per year. basis points,” Larson and the team said.
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Granted, they say it’s not an entirely smooth strategy. After poor performance in the second half of 2020 and the first quarter of 2021, high-priced stocks rebounded in the last three quarters of 2021. Amid the massive factor rotation and volatility we’ve seen so far, “year-to-date returns have been inconsistent this year,” Bernstein said.
So, here’s their list of U.S. stocks with a market cap of over $5 billion, the top quintile of pricing power, and the top two quintiles of positive sales revisions. The top five are UnitedHealth UNH, +0.83%,
Walmart WMT, -1.06%,
Costco Cost, -0.13%,
US Bancorp USMT, +0.91% and Waste Management WM, -1.93%.
Peloton PTON, -13.73% fell on gloomy outlook. Planet Fitness PLNT, +3.03% reported better-than-expected profit. and Norwegian Cruise Line NCLH, which rose 2.60% despite larger-than-expected losses and revenue losses.
After the close we will hear Electronic Arts EA, -0.12% and Roblox RBLX, -7.92%.
Also late is Coinbase COIN, -5.56%,
Crypto exchanges are likely to receive extra attention as shares have fallen 80 percent from their November highs amid the market rout.
The disappointing outlook is hitting shares of AI lending platform Upstart UPST, -58.92% and drug price comparison group GoodRx GDRX, -27.53%.
Cinema chain AMC AMC, -1.32% reported better-than-expected quarter.
Biohaven Pharmaceuticals BHVN, +70.80% shares rose more than 70% after Pfizer PFE, +1.99% announced a $11.6 billion acquisition of the biopharmaceutical group.
New York Fed President John Williams said the Fed will succeed in cooling inflation and keeping the economy growing. A day earlier, the central bank warned that high inflation, tighter monetary policy and the war in Ukraine were causing liquidity problems across financial markets.
President Joe Biden is scheduled to speak at 11:30 a.m. ET on his administration’s efforts to reduce inflation. Small business confidence steadied for the first time in three months. Estimates for real household debt for the first quarter will be released later.
Auto sales in China fell 36% annually in April due to the coronavirus lockdown.
Russia has been cracking down on Ukraine’s vital Odessa port as well as the troubled Mariupol steel mill after the “Victory Day” holiday.
Stock futures YM00, +0.49% ES00, +0.90% NQ00, +1.71% are pushing higher, bond yields TMUBMUSD10Y, 2.960% TMUBMUSD02Y, down 2.614% and USD DXY up +0.12%.
Oil CL00, +0.16% edged lower.
Read: Crypto Crash Continues; Why Bitcoin Dropped 55% in Last 6 Months?
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