Shares continue to slump as fears about the economy and earnings grip Wall Street
MARY LOUISE KELLY, HOST:
Wall Street has been a roller coaster lately. Stocks are in the middle of a nasty sell-off, by one estimate the steepest sell-off we have seen since World War II. Now, markets were already weak because of fears of inflation, and now add to your list two more concerns - geopolitics and earnings.
NPR's David Gura is here with us now. Hey there, David.
DAVID GURA, BYLINE: Hey, Mary Louise.
KELLY: So I'm trying to figure this out because we have been talking about inflation for a while now. Why are the markets so spooked at this moment? I mean, what do you make of it?
GURA: Yeah. Inflation continues to be at a 40-year high. And by now, we've all seen how pernicious it is. But what's really worrying investors is how the Federal Reserve is going to bring it down. The Fed has already begun to administer medicine, starting to raise interest rates a quarter of a percentage point at its last meeting. But now there's a fear the Fed is going to have to deliver a stronger dose.
Fed chair Jerome Powell recently signaled he and his colleagues might hike rates more substantially at their next meeting next week. There could be a lot more rate hikes to come this year, but there's a big question about the size of the dosage, the effectiveness of the treatment. And, if I can belabor the metaphor, the big worry is there could be an unintended side effect here. The Fed could tip the economy into a recession.
Lori Calvasina is the head of U.S. equity strategy at RBC Capital Markets.
LORI CALVASINA: I think that the market has wanted the Fed to fight this fight, but I do think the market is unsettled by the idea of these big, chunky, kind of quick increases.
GURA: Now obviously, the Fed doesn't want a recession. It wants what's called a soft landing to slow down the economy just enough. But, Mary Louise, markets are not convinced the Fed will be able to do that, and investors are preparing for the possibility this could lead to a substantial downturn.
KELLY: All right. So let me turn you to the geopolitics piece of this. There's the war in Ukraine, of course, sadly now entering its third month and profoundly destabilizing on a number of fronts. And now there are fresh concerns about China. Explain.
GURA: Yeah. Both things are on investors' minds. And I'll start with Ukraine. The conflict has had a profound effect on energy prices and commodity prices more broadly. That's added to fears about inflation not just in the U.S., but around the world.
And then in China, those spikes we've seen in COVID cases remind us that the pandemic is still with us. But Wall Street is also worried about the consequences of massive lockdowns China has implemented because of its zero-COVID policy. The global economy has been suffering because of these supply chain issues, and now there are new fears they could linger longer as China shuts down factories and ports.
KELLY: So I'm thinking about investors. I'm also thinking about companies. Where does this leave companies, which, among other things, are try to make a profit? How are they dealing with all these problems?
GURA: They also hate uncertainty. Companies have seen these record profits, but now there are signs that's starting to change. I mentioned supply chain issues a moment ago. Some companies are struggling with those. Others seem to have them figured out. Tesla, for example, reported record earnings, but shares of GE fell after that company said supply chain issues and inflation are weighing on its profitability.
You know, one of the biggest worries for investors right now is tech companies. They were some of the big winners during the pandemic, but recently they've been reporting earnings that have started to concern Wall Street. Netflix saw spectacular growth in recent years, but this time around, it shocked investors by saying it lost subscribers in the first three months of the year. That is the first time that has happened to Netflix in a decade, and the company's shares slumped. Tech is a big focus this week. Meta, Facebook's parent company, just reported revenue that was lower than Wall Street expected. I should say two more big companies are scheduled to report earnings on Thursday - Amazon and Apple.
KELLY: And, of course, just a little bit of Twitter news just to shake things up...
GURA: For good measure, yes.
KELLY: ...Further this week for good measure. That is NPR's David Gura. Thanks for your reporting.
GURA: Thank you.
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