Weekly Market Update 01/22/2022

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Week in Review: A great week -- for the bears 

Simply put, this was an ugly week for the stock market, marred by an inclination to sell into strength. The Dow Jones Industrial Average fell 4.6%, the S&P 500 fell 5.7%, the Nasdaq Composite fell 7.6% and entered contraction territory, and the Russell 2000 fell 8.1% and approached bear market territory. 

The S&P 500 consumer discretionary sector was the weakest sector with an 8.5% decline, followed by the information technology (-6.9%), and communication services (-7.1%) sectors with 7% declines. The utilities sector outperformed on a relative basis with a 0.8% decline. 

The main selling drivers were arguably concerns about profit margins, a fear of being in high-multiple growth stocks that provide disappointing news, anxiety surrounding the Fed's tightening plans, and even the selling itself (which fueled more selling). 

Profit-margin concerns were stoked by Goldman Sachs (GS) amid higher compensation costs, Netflix (NFLX) amid higher programming costs, and PPG Industries (PPG) amid higher raw material costs. To be fair, several companies, including Procter & Gamble (PG), displayed the pricing power to overcome higher costs. 

Picking on Netflix, the stock plunged 22% on disappointing Q1 guidance, which mirrored the 24% drop in Peloton (PTON) the day before when CNBC reported that the company was pausing production of its bikes due to lower demand. Note, Peloton said the report was inaccurate. 

Even though Peloton was already down huge from all-time highs, as was Netflix to a lesser extent, prior to the disappointing news, the fact that the stocks took a huge beating signaled to investors that other beleaguered growth stocks could still face similar paths this earnings season. 

Interest rates were a problem early in the week, as the 2-yr yield brushed up against 1.08% and the 10-yr yield brushed up against 1.90%, but a retracement late in the week provided no moral support. That was likely because the move into Treasuries was driven by a fear of stocks going down. 

On a week-over-week basis, the 2-yr yield increased three basis points to 0.99%, and the 10-yr yield decreased two basis points to 1.75%. The U.S. Dollar Index rose 0.5% to 95.63. Oil prices ($85.16/bbl, +1.29, +1.5%) edged higher amid geopolitical tensions. 

The S&P 500 ended the week below its 200-day moving average (4429). 

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®
Founder/Lead Advisor
Diazo Wealth Group
702-745-1800 Direct
702-278-6560 Cell

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Source: 1. FactSet

Source: Week in perspective provided by Briefing.com. Briefing.com offers live market analysis on their web site www.Briefing.com.

Source: https://www.schwab.com/resource-center/insights/content/schwab-market-update 

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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