Weekly Market Update 01/08/2022
by Justin J. Long CFP®, on Jan 08, 2022
Las Vegas hosted CES this week, for the first time in person since January of 2020. Attendance was down by 75% according to organizers, with 40,000 attendees. The trade show also closed one day early, ending Friday evening.
Also today, long-time Nevada politician, Harry Reid, will be memorialized in a ceremony at the Smith Center. In attendance will be President Biden, as well as former President Obama, and many other current and former Congressional leaders and political figures.
And now on to the recap of this week:
Week in Review: 2022 begins with a huge jump in rates and a growth-stock beatdown
The first week of the new year saw heavy selling in the growth stocks, a rotation into value stocks, and a sharp rise in long-term interest rates. The Nasdaq Composite dropped 4.5%, the Russell 2000 dropped 2.9%, and the S&P 500 dropped 1.9%.
The Dow Jones Industrial Average declined just 0.3% after setting intraday and closing record highs -- as did the S&P 500 -- early in the week.
The S&P 500 information technology (-4.7%), health care (-4.7%), and real estate (-4.9%) sectors fell more than 4.5%, while the energy (+10.6%) and financials (+5.4%) sectors rose more than 5.0% and 10.0%, respectively, amid higher oil prices ($78.94, +3.79, +5.0%) and a steepened yield curve.
The growth-stock weakness was linked to the rise in the 10-yr yield, which hit 1.80% on Friday after starting the week at 1.51%. The first 12-basis-point increase didn't deter risk sentiment, though, evident in the S&P 500 setting record highs to start the week and Apple (AAPL) reaching the $3.0 trillion market capitalization.
The persistent advance to 1.80%, however, was unsettling and opened the door for 2.00%. The increased likelihood for a higher interest-rate environment this year contributed to the rotation into value stocks, even after a broad-based decline following the December FOMC Minutes on Wednesday.
The FOMC Minutes showed that participants thought it would be appropriate to reduce the size of the Fed's balance sheet at a faster pace than during the previous normalization period, as well as starting closer to the first rate hike than last time. Part of the reasoning was the economic outlook is stronger and the balance sheet is simply a lot bigger now.
Expectations for a more assertive Fed were supported by the Employment Situation report for December, which depicted a tight labor market with strong wage gains and near-max employment. Nonfarm payrolls increased by 199,000 (Briefing.com consensus 440,000), the unemployment rate declined to 3.9% (Briefing.com consensus 4.1%), and average hourly earnings rose 0.6% (Briefing.com consensus 0.4%).
The CME Fed Watch Tool increased the probability for the first rate hike in March to 75.7%, versus 54.0% one week ago. The 2-yr yield, which tracks expectations for the fed funds rate, rose 14 basis points to 0.87%. The 10-yr yield ended the week at 1.77%, or 26 basis points above last Friday's settlement.
Interestingly, the rotation into value/cyclical stocks happened despite the deceleration in the ISM Manufacturing and Services PMIs for December and daily COVID-19 cases topping 1 million early in the week.
On a technical note, S&P 500 closed just above its 50-day moving average (4675) at week's end.
|INDEX||STARTED WEEK||ENDED WEEK||CHANGE||% CHANGE||YTD %|
As always, it is my pleasure to bring you this weekly update. If this or anything else is causing you pause or you would like further details, please feel free to reach out to me and we can schedule some time to chat.
Justin J. Long CFP®
Diazo Wealth Group
Upcoming Economic Calendar
Source: 1. FactSet
Source: Week in perspective provided by Briefing.com. Briefing.com offers live market analysis on their web site www.Briefing.com.
The data provided is for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. The information contained here is not guaranteed as to accuracy or completeness. All economic and performance information is historical and does not guarantee future results.
The Dow Jones Industrial Average is a price-weighted index comprising 30 widely traded blue chip U.S. common stocks. The NASDAQ Composite Index is a market-value-weighted index of all common stocks listed on the NASDAQ stock exchange. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. The MSCI Europe, Australasia, and Far East (EAFE) Index tracks the performance of publicly traded large- and mid-cap stocks of companies in those regions. The Cboe Volatility Index (VIX) shows the market’s expectation of 30-day volatility and is constructed using the implied volatilities of a wide range of S&P 500 Index options. Weekly and year-to-date figures for the VIX show percentage changes, not investment returns. The Russell 2000 Index tracks the performance of approximately 2,000 publicly traded small-cap companies in the United States. It is not possible to invest directly in an index.
The Treasury yield curve is derived from available U.S. Treasury securities trading in the market and is provided directly by the U.S. Federal Reserve. The spread measures the difference in yield between two government securities. A normal (positive) yield curve occurs when longer-term rates are higher than shorter-term rates. The opposite holds true for an inverted yield curve. Year-to-date changes in U.S. Treasury bond yields are shown in basis points (bps). One hundred basis points equals one percent.
Oil prices are represented by West Texas Intermediate (WTI) crude oil.
The G20 countries comprise a mix of the world’s largest advanced and emerging economies, representing about two-thirds of the world’s population, 85% of global gross domestic product, and over 75% of global trade.
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