Market Recap - Buyers Lack Conviction

The Stock Market Closed Lower This Week, As Investors Faded A Half-Hearted Rebound Bid During The Week. The S&P 500 And Nasdaq Composite Both Declined 0.3%, While The Dow Jones Industrial Average (-0.9%) And Russell 2000 (-0.8%) Declined Nearly 1.0%.

Nine of the 11 S&P 500 sectors finished in the red, including consumer discretionary (-1.5%), real estate (-2.0%), and utilities (-1.4%) with noticeable declines, while the energy (+5.2%) and communication services (+0.5%) sectors closed higher. Energy stocks followed oil prices ($83.87, +4.93, +6.3%) much higher.

The 10-yr yield wasn't the problem this week since it was unchanged at 1.77%. It was more that the market remained concerned about the Fed's tightening plans, the still-elevated valuations of growth stocks, weakening technical factors, and the disappointing start to the Q4 earnings-reporting season.

Fed Chair Powell, Fed Vice Chair nominee Lael Brainard, and a host of other Fed officials made it clear this week that they support tightening policy in part to keep inflation in check. Mr. Powell said in his confirmation hearing that he thinks the Fed will end asset purchases in March, hike rates over the course of the year, and allow the balance sheet to run off later in the year.

The 2-yr yield, which tracks expectations for the fed funds, rate increased nine basis points to 0.96%. The probability for the first rate hike to be in March increased to 86.1% from 75.9% last Friday, according to the CME FedWatch Tool.

The latest inflation data bolstered these expectations, even though the headline CPI and PPI prints for December decelerated on a month-over-month basis. That was largely due to the sharp decline in oil prices, which have since recovered. The core readings, which exclude food and energy, were hotter than expected.

As for earnings, JPMorgan Chase (JPM), Citigroup (C), and BlackRock (BLK) fell sharply following their earnings reports on Friday, but Wells Fargo (WFC) pleased shareholders with its report. 

Other considerations included the S&P 500 closing below its 50-day moving average (4681), inviting the potential for follow-through selling; downside guidance from Sherwin-Williams (SHW), raising concerns about margin pressures; and the breakdown in negotiations surrounding the Build Back Better Act.

Market Recap - 2022 Begins With A Huge Jump In Rates & 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 FedWatch 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.

SEASONALITY KEEPS MARKET AFLOAT TO END 2021

The Major Indices Ended The Last Week Of 2021 On A Mostly Positive Note, Particularly For The S&P 500 (+0.9%) And Dow Jones Industrial Average (+1.1%). Both Gained Around 1.0% And Set Intraday And Closing Record Highs This Week. The Nasdaq Composite Declined 0.1% While The Russell 2000 Increased 0.2%.

There weren't any specific catalysts driving the action, suggesting seasonal factors and year-end rebalancing activity played influential roles. This week encompassed part of the Santa Claus rally period, which is defined as the last five sessions of the year and the first two sessions of the new year.

Ten of the 11 S&P 500 sectors finished in positive territory for the week. No sector rose more than the 3.7% gain in the real estate sector, but the materials (+2.6%), consumer staples (+2.5%), and utilities (+2.6%) sectors did compete. The communication services sector (-0.8%) closed lower after a tough session on Friday.

There was plenty of COVID-19 news in the mix.

The bad news was that businesses continued to see Omicron-related disruptions, as called out by Micron (MU) and seen in flight/cruise line cancelations. The CDC even upped its travel notice on cruise lines to Level 4, advising people to "avoid cruise travel, regardless of vaccination status."

The CDC, however, shortened the recommended isolation time for asymptomatic people with COVID-19 to five days from 10 days. The FDA, meanwhile, is expected to expand eligibility for Pfizer's (PFE) booster shot to 12- to 15-year-olds on Monday. Johnson & Johnson (JNJ) said data demonstrated its booster shot was 85% effective against hospitalization in South Africa when the Omicron variant was dominant.

The Treasury market was quiet this week. The 10-yr yield increased two basis points to 1.51% (+59 bps in 2021) while the 2-yr yield increased four basis points to 0.73% (+61 bps in 2021).

Market Recap - Santa Claus Makes Early Appearance on Wall Street

The S&P 500 Rose 2.3% On Christmas Week, As Buy-The-Dip Efforts Prevailed In Convincing Fashion. The Nasdaq Composite (+3.2%) And Russell 2000 (+3.1%) Both Advanced More Than 3.0% While The Dow Jones Industrial Average Increased 1.7%.

The market ended a three-day skid with a three-day rally, which saw the S&P 500 circle around its 50-day moving average (4628). All 11 sectors closed higher, led by the consumer discretionary (+3.8%) and information technology (+3.3%) sectors with gains over 3.0%. The utilities sector increased just 0.2%.

There wasn't one specific thing that catalyzed the rally, but there was a belief that market had gotten oversold on a short-term basis and was due for a rebound. Moreover, investors have shown a strong willingness to buy the dip whenever the benchmark index breaches its 50-day moving average.

Other supportive factors included waning concerns about the Omicron variant amid encouraging research and vaccine data, hope that Senator Manchin (D-WV) can get on board with the Build Back Better Act after initially rejecting it, better-than-expected earnings results from Nike (NKE) and Micron (MU), and positive momentum.

At the same time, the market brushed aside concerns about the Fed potentially making a policy mistake next year. It's worth reminding that even if the Fed hikes rates three times, the rate environment will still be relatively accommodative.

The Treasury market softened up amid the bullish price action in equities and some encouraging economic data. The 2-yr yield rose five basis points to 0.69%, and the 10-yr yield rose nine basis points to 1.49% -- steepening the curve.

As an aside, the market rebounded right before the seasonally-favorable Santa Claus rally period, which is defined as the last five trading sessions of the year and first two sessions of the new year. Of course, there's no guarantee the next seven sessions will end with gains.

Market Recap - Market Struggles as Fed Does the Expected

After The S&P 500 Ended Last Week At A Closing Record High, The Benchmark Index Fell 1.9% This Week, As Investors Took Profits And Digested The FOMC Policy Decision. The Russell 2000 (-1.7%) And Dow Jones Industrial Average (-1.7%) Both Declined 1.7% While The Nasdaq Composite (-3.0%) Underperformed With A 3.0% Decline.

As expected, the Fed left the target range for the fed funds rate unchanged at 0.00-0.25%, said it will double the reduction of asset purchases to $30 billion per month ($20 billion for Treasuries and $10 billion for agency MBS), and signaled three rate hikes in 2022 amid expectations for continued inflation pressures.

On a related note, the Producer Price Index for November came in hotter than expected, with the index for final demand up 0.8% month-over-month (Briefing.com consensus 0.5%) and up 9.6% year-over-year.

Interestingly, the only day the S&P 500 closed higher was Fed decision day, and that was largely due to short-covering activity on the view that Fed Chair Powell didn't sound as hawkish as feared. The market fumbled that rally over the next two days, leaving the sectors mixed by week's end.

The information technology (-5.1%), consumer discretionary (-4.3%), and energy (-5.0%) sectors were the weakest performers with losses over 4.0%. The defensive-oriented health care (+2.5%), real estate (+1.6%), consumer staples (+1.2%), and utilities (+1.2%) sectors rose more than 1.0%.

With Apple (AAPL) nearly hitting a $3.0 trillion market capitalization, investors presumably felt it was appropriate to take profits, especially when also taking into consideration downside guidance from Adobe (ADBE) and the continuing spread of the coronavirus.

The 10-yr yield fell nine basis points to 1.40% amid increased demand while the 2-yr yield decreased two basis points 0.64% despite the Fed signaling three rate hikes next year.

Elsewhere, the Bank of England increased its bank rate by 15 basis points to 0.25% in a surprise move. The European Central Bank and Bank of Japan left rates unchanged, as expected, and announced a further tapering of asset purchases.

Market Recap - S&P 500 Snaps Back to a Record Close

The S&P 500 Rallied 3.8% This Week, And Closed At A Record High, As The Market Overcame Concerns About The Omicron Variant And Reacted Positively To Hot Consumer Inflation Data. The Dow Jones Industrial Average (+4.0%) And Nasdaq Composite (+3.6%) Also Rose More Than 3.5% While The Russell 2000 Rose 2.4%.

All 11 S&P 500 sectors ended the week with gains over 2.0%. The information technology sector (+6.0%) was the strongest performer with a 6% gain, and on the other end was the consumer discretionary sector (+2.5%) with a 2.5% gain.

A bulk of the gains were registered in the first two days of the week on optimism that the Omicron variant wasn't as bad as originally feared. The market's thinking received some confirmation on Wednesday after Pfizer (PFE) and BioNTech (BNTX) said preliminary data suggested that three doses of their current vaccine neutralize the Omicron variant and that two doses protect against severe disease.

The Pfizer-BioNTech news solidified the rally effort, which was further supported by lawmakers moving closer to raising the debt ceiling. On Friday, the big market event was the Consumer Price Index (CPI) report for November, which was taken in stride by the large-cap stocks.

Briefly, total CPI increased 0.8% m/m in November (Briefing.com consensus 0.6%), leaving it up 6.8% yr/yr for its highest yearly increase since 1982. Core CPI, which excludes food and energy, increased 0.5% m/m, as expected, and was up 4.9% yr/yr.

Stocks reacted positively to the report, presumably because inflation tends to be sign of robust economic activity and offer companies pricing power for greater earnings potential. The interesting price action was in the Treasury market, which held its ground despite the implications of a more aggressive Fed.

It's worth positing, though, that Treasury yields might have already anticipated the data. Versus last Friday's levels, the 10-yr yield rose 15 points to 1.49%, and the 2-yr yield rose eight basis points to 0.66%. The U.S. Dollar Index decreased 0.1% to 96.03.

Market Recap - S&P 500 and Nasdaq Surrender 50-Day Moving Averages

S&P 500 and Nasdaq Surrender 50-Day Moving Averages

The stock market endured a volatile week as uncertainty related to the Omicron variant of the coronavirus dominated the conversation. The Dow and S&P 500 lost a respective 0.9% and 1.2% for the week while the Nasdaq under performed, falling 2.6%.

Concerns related to the new coronavirus variant appeared to be on the backburner during a Monday rebound from last Friday’s loss, but selling pressure returned to the market as the week went on, driving the S&P 500 past its 50-day moving average (4544.74) while the Nasdaq also fell below its 50-day moving average (15276.38), reaching its lowest level since late October.

Nine out of eleven sectors ended the week in negative territory with communication services (-2.8%), consumer discretionary (-2.4%), and financials (-2.0%) recording the widest losses while the real estate sector (+0.1%) and utilities (+1.0%) finished the week in positive territory.

Growth stocks were among the weakest performers with the likes of Amazon (AMZN), Microsoft (MSFT), and Tesla (TSLA) losing between 1.8% and 6.2%. In earnings, DocuSign (DOCU) plunged to its lowest level since mid-2020 after disappointing guidance overshadowed a Q3 beat.

Like stocks, crude oil faced a volatile week, failing to hold its 200-day moving average (69.88). WTI crude ended the week lower by $1.79, or 2.6%, at $66.38/bbl. OPEC+ announced on Thursday that it is keeping its plan for a 400,000-bpd output increase in January.

In Washington, Fed Chairman Powell said during his Congressional testimony that the word “transitory” should no longer be used when describing inflation. He added that the central bank may bring forward the planned end of asset purchases by a few months and that an acceleration of the taper will be discussed at the policy meeting in December. Separately, Congress voted in favor of another short-term funding bill that will delay the risk of a government shutdown into mid-February.

Market Recap - Omicron Variant Takes Down the Market

Ten of the 11 S&P 500 sectors closed lower, led by consumer discretionary (-3.6%), communication services (-3.3%), and information technology (-3.2%) with losses over 3.0%. The energy sector (+1.7%) escaped with a nice gain, even though it fell 4% on Friday. 

Before the variant news on Friday, the market was experiencing a rotation into value stocks from growth stocks amid growing expectations for the Fed to be more aggressive in tightening policy. These expectations were supported by the following developments:

• President Biden announced he will nominate Jerome Powell for a second term as Fed Chair and nominate Lael Brainard for Vice Chair of the Board of Governors.

• Weekly initial claims (199,000) fell to their lowest level since Nov. 15, 1969, and the Fed’s preferred inflation gauge in the PCE Price Index was up 5.0% yr/yr in October.

• The FOMC Minutes from the November meeting explicitly corroborated these expectations.

• The 2-yr yield was up 13 basis points in three days.

Everything was upended on Friday following news of the Omicron variant, which was first identified in South Africa. A risk-off mindset permeated global markets: Stocks in Asia, Europe, and the U.S. closed sharply lower, Treasury yields dropped precipitously, WTI crude futures dropped 12% (-9% for the week), and the CBOE Volatility Index spiked more than 50%.

Likewise, rate-hike expectations were tempered, according to the CME Fed Watch Tool. The probability for a rate hike in May 2022 decreased to 36.4% from 55.3% on Wednesday, and the probability for a rate hike in June 2022 decreased to 61.8% from 82.1% on Wednesday.

The 2-yr yield was down 12 basis points to 0.52% ahead of the bond market close at 2:00 p.m. ET Friday. The 10-yr yield was down 16 basis points to 1.49% after brushing up against 1.70% early in Wednesday’s session.

Separately, the U.S. confirmed plans to release 50 million barrels of oil from the Strategic Petroleum Reserve over several months. China, India, Japan, South Korea, and the UK are also expected to tap into their oil reserves.

Market Recap - Mega Cap Excellence

Mega-Cap Excellence

After snapping a lengthy winning streak last week, the market returned to its winning ways, and by “market,” we mean the mega-cap stocks. The Vanguard Mega Cap Growth ETF (MGK) rose 2.2%, while the Invesco S&P 500 Equal Weight ETF (RSP) fell 1.2%.fell 1.0%.

The S&P 500 (+0.3%) and Nasdaq Composite (+1.2%), which have more exposure to mega-cap growth, set record closing highs this week. The Dow Jones Industrial Average (-1.4%) and Russell 2000 (-2.9%), which are more exposed to cyclical names, ended the week with 1% and 3% declines, respectively.

The broader market was slowed down by lingering growth concerns after Walmart (WMT) and Target (TGT) said they will absorb inflation pressures to keep prices down, Cisco (CSCO) issued a revenue warning due to ongoing supply issues, and Austriare imposed a COVID lock down.

In turn, Treasuries pushed higher in a flight to- safety trade, and oil prices fell 6% amid expectations for softer demand and potentially supply if countries tap into their oil reserves. The 10-yr yield declined four basis points to 1.54%. The U.S. Dollar Index rose 1.0% to 96.03.

From a sector perspective, the consumer discretionary (+3.8%) information technology(+2.4%), and utilities (+0.9%) sectors were the only sectors that closed higher. The energy (-5.2%), financials (-2.8%), materials (-2.0%), and industrial s (-1.2%) sectors fell noticeably.

The economic data, meanwhile, was encouraging. Retail sales for October, industrial production and capacity utilization for October, the NAHB Housing Market Index for November, and the Philadelphia Fed Index for November were each better than expected. Weekly jobless claims also showed continued improvement.

In addition, President Biden signed the $1.2 trillion bipartisan infrastructure bill, the House passed the $1.75 trillion Build Back Better Act, and a CDC advisory committee recommended in a unanimous vote for all adults to get COVID-19 booster shots from Pfizer (PFE) or Moderna (MRNA) six months after the second dose.

Nevertheless, investors leaned defensively with the market at record highs and continued to bid up shares of the mega-cap companies for their dependable earnings growth. Notably, NVIDIA (NVDA) rose 8.5% after providing pleasing earnings results and guidance.

Winning Streak Snapped

The Stock Market's Five-Week Winning Streak Was Put To An End This Week, As Well As The S&P 500'S Eight-Session Winning Streak And The Nasdaq Composite's 11-Session Winning Streak. Both Declined 0.3% And 0.7%, Respectively, While The Dow Jones Industrial Average Fell 0.6% And The Russell 2000 Fell 1.0%.

The consumer discretionary (-3.2%) and energy (-1.7%) sectors were by far the weakest performers with 3.2% and 1.7% declines, respectively. The former was pressured by a 15% decline in Tesla (TSLA), as CEO Elon Musk started to sell shares in accordance with a Twitter poll that indicated he sell 10% of his stake. 

Five of the 11 S&P 500 sectors, however, closed higher. The materials sector was impressive with a 2.5% gain, although no other sector rose at least 0.7%.

The impetus for the setback at the index level was profit-taking interest and a sharp rise in Treasury yields, which were catalyzed by hawkish Fed expectations for next year following a hotter-than-expected Consumer Price Index for October.

Specifically, total CPI rose 0.9% m/m (Briefing.com consensus +0.6%) and was up 6.2% yr/yr -- the largest 12-month increase since November 1990. Core CPI, which excludes food and energy, rose 0.6% m/m (Briefing.com consensus +0.4%) and was up 4.6% yr/yr.

As of 4:05 p.m. ET Friday, the probability for a rate hike in June 2022 was 69.1%, versus 50.9% last week, according to the CME Fed Watch Tool. The probability for a second rate hike next November increased to 64.9% from 44.7% last week.

The 2-yr yield rose 12 basis points to 0.52%, and the 10-yr yield rose 13 basis points to 1.58%. The U.S. Dollar Index rose 0.8% to 95.09.

Walt Disney (DIS) and Rivian (RIVN) were two other story stocks. Disney shares dropped 8% following its earnings report. RIVN finished 66% above its IPO price, bringing the EV-maker's market capitalization over $110 billion.