Here’s What’s Stopping Stocks From Sinking Into a Bear Market After Friday’s Flirt

The reasons for the slight turnaround seem very short-term. Talk about reducing tariffs on China bolstered sentiment, but nothing has actually happened yet.

On the other hand, none of the reasons to be gloomy have changed much. Retailers reporting this week will show us more about how households are coping with inflation, and the evidence so far isn’t pretty. The Federal Reserve minutes this week will probably show policy makers are still determined to keep hiking rates to kill off inflation, possibly taking the economy down with it.

For anyone hoping that some lofty words at the World Economic Forum in Davos, which started last night, will save the world—good luck with that.

Bank of America

strategists say that, if history is any guide, the S&P could bottom out at 3,000 in October. That compares with Friday’s close of 3,901. The bullish case is for the bottom to be 3,600.

They say that “hope springs eternal” and that we “live in hope.” But anyone who’s ever seen their favorite team lose in a heartbreaker knows it can also be the hope that kills you.

—Brian Swint

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***

Another Week of Retail Earnings to Emphasize Inflation Effects

This week’s earnings from retailers including

Macy’s
,

Dollar General
,

Dollar Tree
,
and

Costco Wholesale

will shed light on how consumers are navigating inflation, higher gasoline costs, and their household budgets.

Walmart
’s
and

Target
’s
recent underwhelming earnings show shoppers are spending more carefully.

• The

  
  S&P Retail Select Index
  is down 32% year-to-date, compared with the S&P 500’s 18% decline.

  
  
  Visa
  ’s
  spending momentum index is at its lowest point since February 2021 as consumers spend more for food and gas, and less on discretionary items.

• Government data said April sales for retailers rose 0.9% from March and 8.2% from last year, but when adjusted for inflation using the consumer price index, they were negative for the second straight month, Barron’s reported.
• Analysts surveyed by FactSet expect same-store sales to dip 2.8% at Dollar General and increase 2.3% at Dollar Tree. Both companies could benefit from shoppers abandoning name brands for less expensive private-label goods. Both report earnings on Thursday morning.
• Macy’s, which also reports on Thursday morning, has warned that it will be hard to repeat its 2021 performance. Analysts expect a 13.6% uptick in same-store shoppers and stronger sales of higher-priced items as people returned to work and in-person gatherings.

What’s Next: On Friday, the Bureau of Economic Analysis is scheduled to release the personal income, personal spending data, and the personal consumption expenditure price index for April. Both income and expenditures are expected to rise about 0.6% from the prior month.

—Janet H. Cho

***

Second Baby-Formula Shipment From Europe Coming This Week

The Defense Department has contracted with

FedEx

to transport a second formula flight, of

Nestlé
’s
Gerber Good Start Extensive hypoallergenic formula from Germany to Washington Dulles International Airport in coming days. The specialty formula is for children who are allergic to the protein in cow’s milk.

• Together with Sunday’s shipment of 78,000 pounds of Nestlé’s Alfamino Infant and Alfamino Junior formula, they represent the equivalent of 1.5 million 8-ounce bottles of specialty formulas. The initial shipment arrived on a C-17 military plane from Germany to Indianapolis, Ind.
• White House press secretary Karine Jean-Pierre said the shipment came under President Joe Biden’s Operation Fly Formula, which authorizes the Agriculture and Health and Human Services Departments to pick up infant formula from overseas that meets U.S. health and safety guidelines.

• 
  
  Abbott Laboratories
  
  CEO Robert Ford wrote a letter to the Washington Post apologizing for the company’s part in the shortage. It closed a Michigan factory earlier this year after a voluntary recall. That factory could reopen by the first week of June.

• Abbott will restart production of its EleCare brand first when the factory resumes. It also created a $5 million fund to help affected households with medical and living expenses, and moved some production of ready-to-feed liquid formula to Columbus, Ohio.

What’s Next: National Economic Council Director Brian Deese asked on CNN why three companies control 90% of the nation’s baby formula production, saying the U.S. needs more competition and more formula manufacturers, “so that no individual company has this much control over supply chains.”

—Janet H. Cho

***

VMware Soars on Report of Broadcom Takeover Talks

Shares of cloud computing provider

VMware

were surging Monday, after reports said chip maker

Broadcom

was in talks to buy the software company. Broadcom, with a market value of about $222 billion, is negotiating to buy VMware, with a value of about $40 billion as of Friday’s market close, according to a report by The Wall Street Journal.

• VMware software allows businesses to mix public cloud services like those offered by Amazon.com with their own networks. Demand for cloud services increased during the Covid-19 pandemic as companies shifted to remote work. A price for the cash-and-stock offer wasn’t mentioned, and it is still possible that no deal will be reached.
• Broadcom has been looking for a deal for a while after buying Symantec Corp.’s enterprise security unit for $11 billion in 2019. Acquisitions have played a large part in Broadcom’s growth strategy, CEO Hock Tan said at the time.
• VMware shares jumped around 14% in premarket trading Monday. Broadcom declined around 2%. VMware has declined 17.4% this year and Broadcom has dropped more than 18%, in line with the broader market.

What’s Next: The transaction shows that deal making isn’t dead even though the drop in the S&P 500 this year to the brink of a bear market has made things more difficult. VMware is due to report earnings on Wednesday and Broadcom’s earnings are scheduled for next week, so expect imminent updates.

—Brian Swint

***

JPMorgan Holds First Investor Day Since Pandemic Began

JPMorgan Chase

holds its first investor day in two years today, facing criticism over its plans to spend billions of dollars this year on technology upgrades and other projects and award CEO Jamie Dimon a $50 million one-time bonus, which shareholders rebuked in a symbolic vote.

• The bank’s shares are down nearly 26% so far this year compared with the 19% drop in the

  
  Invesco KBW Bank ETF,
  which counts JPM as one of its biggest holdings, and the 18% drop in the S&P 500.

• Analysts and investors are awaiting more details about the bank’s plan to invest nearly $15 billion in cloud computing capabilities and hiring and marketing, and what returns those investments might generate, the Financial Times reported.
• The bank is also expected to detail its expansion into the U.K. last year with a digital-only retail bank. JPMorgan has been filling out its domestic branch network, reaching a presence in all 48 contiguous U.S. states last year.
• In the past year, JPMorgan acquired Frank, a college financial planning site and The Infatuation, a restaurant website that owns the Zagat guide. Both are seen as boosting the bank’s customer loyalty programs. It also bought U.K. digital wealth management site Nutmeg.

What’s Next: Now that the Federal Reserve is expected to raise interest rates at a faster pace this year, analysts are watching for JPMorgan to raise its guidance for 2022 net interest income because it can earn more from lending than previously expected, the FT reported.

—Liz Moyer

***

Annual Davos Summit Back in Person Amid Increased Uncertainty

Ukrainian President Volodymyr Zelensky addresses the World Economic Forum in Davos, Switzerland, today as the annual meeting convenes in person for the first time since 2020. Headliners include German Chancellor Olaf Scholz, European Central Bank President Christine Lagarde, and European Commission President Ursula von der Leyen.

• Other scheduled speakers include

  
  
  Moderna
  
  CEO Stéphane Bancel,

  
  
  Citigroup
  
  CEO Jane Fraser, and International Monetary Fund head Kristalina Georgieva. Russian President Vladimir Putin and Russian business oligarchs weren’t invited.

• Given Russia’s war on Ukraine and ongoing uncertainty about the global economy and the pandemic, WEF founder Klaus Schwab said it is the most timely and consequential annual meeting since the forum was created.
• A panel of U.S. Senators will discuss the challenges they face amid an era of hyperpartisan politics. Speakers include Sens. Christopher Coons (D., Del.), Debra Fischer (R., Neb), Patrick Leahy (D., Vt.), Robert Menendez (D., N.J.), and Roger Wicker (R., Miss.).
• The Russia-Ukraine war has raised fears of a global food shortage that could trigger widespread social unrest and migration. Officials including Syngenta CEO J. Erik Fyrwald will discuss averting a global food crisis.

What’s Next: The global growth outlook remains shaky. Many of the CEOs at Davos likely lead companies that have seen steep stock declines and continue to face supply and pricing challenges. That is likely to be a topic of conversation both on the stage and behind the scenes this week.

—Jack Denton and Janet H. Cho

***

MarketWatch Wants to Hear From You

Real estate is still appreciating while the stock market tumbles. Can a real estate investor still do a tax-free ‘Section 1031 exchange’ for a greatly appreciated real property investment?

A MarketWatch correspondent will answer this question soon. Meanwhile, send any questions you would like answered to [email protected].

***

—Newsletter edited by Liz Moyer, Camilla Imperiali, Rupert Steiner