S&P 500 Has Been Flirting With a Bear Market

And “pandemic stocks” have been leading the descent

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May 25th, 2022

Stock market panic has hit a fever pitch as another week of declines left the S&P 500 on the brink of a bear market. “Pandemic stocks” led the way as e-commerce stars from 2020 continue to retreat in 2022. The home market showed signs of slower growth last week, but unfortunately that wasn’t the case for gas prices. And as electric vehicles look more appealing by the day, Tesla has suddenly found itself booted out of S&P’s ESG Index.

Get the full scoop on each of these stories below. Plus, check out what our staff enjoyed reading last week and which stories they think you should keep your eye on.

Clint, Editor-in-Chief

Clint Proctor

What Everyone’s Been Buzzing About

The stock market extends its slide. All major stock market indices fell again last week after investors were disappointed by retailer earnings reports. On Friday, the S&P 500 briefly dipped into bear market territory (i.e. a 20% decline from its last high) and has suffered six straight losing weeks. The Nasdaq is on a six-week losing streak as well, while the Dow (not to be outdone) has fallen for seven straight weeks.

The upside? There’s rarely been a better time for long-term investors to follow the dollar-cost averaging strategy.

High-flying “pandemic stocks” are falling back to earth. When the world went into lockdown, several companies were able to capitalize on the online shopping revolution. “Buy now, pay later” businesses like Affirm and Klarna exploded during the pandemic as did online used car retailers like Carvana.

But as the world reopens, e-commerce transactions are declining and many of these companies are now facing economic headwinds. Klarna just laid off 10% of its workforce. Shares of Affirm are down more than 80% over the past 6 months. And Carvana, which has also fallen out of favor with Wall Street, is down nearly 90% for the year.

Existing home sales hit a post-pandemic low. Online sales aren’t the only numbers moving in the wrong direction this year. According to the National Association of Realtors (NAR), 5.61 million existing homes were sold in April 2022, which was 2.4% less than March and 5.9% less than April 2021. That doesn’t mean that we’ve entered a buyer’s market though…at least not yet. The median home price hit another all-time-high of $391,000 in April which represented a 14.8% increase over the past 12 months.

Tesla was kicked out of the S&P 500 ESG Index. In a head-scratcher, S&P Global announced last week that it had removed Tesla (the world’s largest electric vehicle manufacture) from its S&P 500 ESG Index as part of its annual rebalancing.

Even more mystifying was the fact that mammoth oil producer ExxonMobil made the S&P 500’s ESG list. The shock announcement incited Musk to tweet that ESG was a scam. Cathie Wood, the fund manager of Ark Invest, also criticized the move as “ridiculous.”

For what it's worth, it appears that S&P Global mostly made their decision based on social not environmental factors. Still, it’s a reminder that ESG ratings aren’t perfect and that investors should always do their own research to find out if ESG-rated companies are really ESG.

Gas prices continue to break records. Since AAA began tracking U.S. fuel pump prices in 2000, it’s never reported a higher average cost than last Thursday’s price of $4.59 per gallon. That’s just what none of us want to hear, and especially those of us who were planning summer road trips.

Learn more: Here’s How Investors Should Respond to Skyrocketing Energy Prices

What To Keep Your Eye on This Week

Ulta reports earnings on Thursday. Amidst a difficult period for many retailers, Ulta Beauty’s performance has been a rare, pleasant surprise. The company showed strong sales growth in its last earnings report, well out-pacing expectations. Investors are eager to see if the positive trend will continue or if inflation and supply chain issues will bog down the beauty supply juggernaut as they have so many others in the retail sector.

April pending home sales numbers will be released. You may be thinking, “Wait, didn’t we already discuss the April home sales numbers?” Yes, those were home sales that closed in April. But on Thursday, the NAR‘s pending homes sales report will show how many homes were under contract at the end of the month. If these numbers are down (as they were in March), it could be our first sign that home sales will decline again in May.

Staff Favorites

Here are three featured stories from around the web that our team found interesting:

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Clint Proctor

Clint Proctor is Investor Junkie's Editor-in-Chief. Before joining the Investor Junkie team, he served as the managing editor of The College Investor from 2020-2022. His writing has also been featured in several major publications such as Business Insider, Credit Karma, MyFICO blog, and MagnifyMoney.

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