The year-to-date selloff in equities accelerated last week, piercing significant technical milestones in the process. The S&P 500®
index shed 5.7 percent, its worst weekly decline since March, 2020. In the process, the index fell through both its 100- and 200-day moving averages. The index is now lower on the year by 7.7 percent, and down 8.3 percent from its January 3 closing high. The VIX index surged higher from 19 to 28. The declines were even worse for the Nasdaq Composite, which fell 7.6 percent for the week, leaving it lower by 12.0 percent on the year, and down 14.3 percent from its November 19 high.
Other, perceived riskier parts of the market got hammered last week as well. The Russell 2000 small cap index shed 8.1 percent. And from the last trade on Friday, January 14 through midday Saturday, the 22nd
., Bitcoin is down 19 percent, leaving it 48 percent below its November 9 peak.
At the sector level, the worst performing group last week and for the year thus far has been Consumer Discretionary, down 8.2 percent last week and 11.7 year-to-date. The decline was led by a 12 percent loss by Amazon, and a 10 percent decline by Tesla. The most notable loser overall was Netflix, which fell a whopping 22 percent on Friday after forecasting slower subscriber growth ahead. For the year-to-date, Netflix has lost more than a third of its value. Those declines were closely followed by losses among Technology stocks, down 6.9 and 11.2 percent for the week and year respectively. Other notably weak groups on the year include Real Estate and Healthcare. No sector was higher last week, although Utilities and Consumer Staples suffered only modest declines. For the year, only Energy is higher, up a notable 12.5 percent. By style, the Russell 3000 Growth index is lower on the year by 12.5 percent, while 3000 Value index is lower by 3.9 percent.
Ironically, it was the bond markets, where rising yields have pressured equity prices, that not only outperformed last week, but at certain points on the yield curve rose modestly in flight to safety buying. The yield on the thirty-year Treasury fell five basis points last week to 2.07 after reaching 2.19 percent on Tuesday. The yield on the ten-year note fell two basis points to 1.76 percent, after reaching 1.87 percent also on Tuesday. The two-year note ended the week at 1.00 percent, higher by four basis points from the prior week, but down from 1.05 percent at the close on Thursday. High yield bond spreads widened as yields rose. The ICE Bank of America High Yield index ended the week at 4.83 percent, higher by 23 basis points. BBB spreads widened by a modest four basis points.
Commodity Prices on the Rise; Overseas Markets Relatively Calm Compared to the U.S.
Commodity markets bucked the trend in equities as the Bloomberg Commodity index rose 1.8 percent, led by strength across the board, with the exception of natural gas. WTI crude oil rose $1.32 to $85.14 a barrel for its fifth straight weekly gain. The Bloomberg Dollar Spot index edged 0.4 percent higher.
Overseas markets were relatively calm compared to the U.S. Stocks in Europe lost ground, as the EuroStoxx 50 index fell 1.00 last week, and in the UK the FTSE 100 slipped 0.6 percent. And in Japan, the Nikkei 225 index slid 2.1 percent. In contrast, in China the CSI 300 index rose 1.1 percent, while in Hong Kong, the Hang Seng index rose 2.4 percent. The MSCI Latam index also rose, climbing 1.2 percent.
All Eyes will Be on the Fed this Week; Fourth Quarter Earnings Off to a Mixed Start
Headlining this week's calendar is the Fed meeting on Tuesday and Wednesday. No action is anticipated, but the Fed may have more to say about its intentions, especially at its next meeting in March. Speculation has risen in some quarters that the Fed could raise its overnight rate by more than three or even four times this year, including a possible 0.5 percent increase in March. The rest of the calendar is also quite full. The advance estimate of fourth quarter GDP is expected to show annualized real growth of 5.3 percent. The PCE deflator for December is expected to edge higher to 5.8 percent for the full- year, with the core rate rising slightly to 4.8 percent. Durable goods orders are expected to have slumped in December, consistent with other recent measures of year-end activity. New and pending home sales are expected to rise. January readings for durable goods, consumer confidence, and flash PMIs are all expected to have declined.
Fourth quarter earnings season, off to a mixed start, has a chance to redeem itself this week, especially among Technology stocks, including Microsoft and Apple. Tesla is also scheduled to report this week, along with roughly one-fifth of the entire S&P 500. But the suddenly sour sentiment appears to be firmly in place as this week gets underway. Stocks were mixed overnight in Asia, but are sharply lower in mid-day trading in Europe. U.S. futures are pointing to a lower open as well, and bond yields are modestly lower. Investors are watching rising tensions over Ukraine amid speculation of a Russian invasion that could lead to both a military and legal response by the west. On a brighter note, the rate of new Omicron infections nationwide fell last week after peaking on Friday the 14th
., so far following the pattern seen elsewhere after a month-long ascent.
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A 10-year Treasury note
is a debt obligation issued by the United States government that matures in 10 years.
A 2-year Treasury note
is a debt obligation issued by the United States government that matures in 2 years.
The personal consumption expenditure
) measures of the prices that people living in the United States pay for goods and services. The PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior.
The Chicago Board Options Exchange (CBOE) Volatility Index (VIX
) is a widely used measure of market risk. It shows the market's expectation of 30-day volatility. The VIX is constructed using the implied volatilities of a wide range of S&P 500 index options. VIX values greater than 30 are generally linked to a large volatility resulting from increased uncertainty, risk and investors' fear. VIX values below 20 generally correspond to stable, stress-free periods in the markets.
The ICE BofA High Yield Index
uses an index of bonds that are below investment grade (those rated BB or below).This data represents the ICE BofA US High Yield Index value, which tracks the performance of US dollar denominated below investment grade rated corporate debt publicly issued in the US domestic market.
West Texas Intermediate (WTI)
is a grade of crude oil commonly used as a benchmark for oil prices.
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