Tech Stocks Dive
The equities market had the biggest decline last week in over a year as anxiety over rising interest rates and fear of slowing economic growth pushed equities lower. Technology stocks, as measured by the Nasdaq Composite index, had their biggest weekly drop since the start of the pandemic, falling into correction territory. Consumer discretionary and financials shares did not fare much better. Fears that the Federal Reserve will be more aggressive in raising rates caused investors to sell.
It’s Earnings Season!
The focus this week turns to fourth-quarter company earnings, which in general is expected to be a stronger profit growth for economically sensitive value stocks such as energy, materials, and industrials compared to high growth technology companies. These economically sensitive sectors do better when there is inflation as their margins increase. The earnings reports will also show how companies are handling inflation. Notable names are reporting this week, such as Goldman Sachs, Travelers, and Bank of America, along with Netflix, United Airlines, and Procter & Gamble.
2021 Sets Jobs Creation Record
On Friday, we saw a disappointing jobs report as the U.S. economy added fewer jobs in December than expected. Despite a lower number, the jobs report showed a rise in hourly earnings, and the unemployment fell to 3.9%. According to Reuters, a record 6.4 million jobs were created in 2021, the highest annual increase in employment since record-keeping started in 1939. The 10-Year U.S. Treasury yield closed below 1.8%, continuing its run from the end of the year where the yield was around 1.5%.
Santa Claus Rally Reaches Records
The Santa Claus rally pushed equities to record highs the last week of the year. The real estate, utilities, and materials sectors outperformed with trading volume light while communication services and technology stocks lagged. An early indication of holidays sales shows that Americans were ready to spend as MasterCard reported that holiday sales rose 8.5% in December from a year earlier.
Fed News Fuels Market Volatility
Volatility in the equity markets rose last week following the Federal Reserve’s decision to end bond purchases sooner and raised the prospects of rate hikes in 2022. Markets ended the week lower, with the technology-heavy Nasdaq underperforming by a wide margin. As expected, the Federal Reserve accelerated the pace at which it will taper its bond purchasing program but left interest rates unchanged. The outlook for higher interest rates weighed on technology shares while value stock relatively performed better.
Monthly Performance November 2021
October experienced a spectacular rebound from the September Effect drawdown, with the S&P 500 gaining 7.0% along with long-dated Treasuries returning 1.8%. This momentum was aided by President Biden’s massive stimulus expected from the Infrastructure Bill, above consensus corporate earnings, and the market’s expectation of a softer landing in rate tightening. Equity market gains were concentrated on growth and momentum factors not commonly dominant during extended secular economic recoveries.
Investors Unfazed by INFLATION
Inflation soaring to the highest level since 1982 did not scare investors away from equities as markets closed the week higher. Consumer inflation climbed in November to almost a four-decade high. Technology shares led the rally as financials and utilities lagged for the week. Concerns over the potential impact of the Omicron variant of COVID-19 on the economic recovery eased, which helped equities higher.
Market Reacts to Omicron
Omicron, the newest COVID variant, caused a selloff in the equity markets last week as investors weighed the possibility of new lockdown measures. More cases of the new variant were discovered in the United States, which helped trigger angst in the markets. Investors were also reacting to Fed Chair Jerome Powell, who mentioned that rates could rise sooner than previously thought.
Media Kit – Sowell Management
About Sowell Management Recognized as a pioneer in the fee-only financial planning practice, Bill Sowell formed Sowell Management in 2001 to offer asset management, transition strategy and support, and customized practice management solutions to Independent Advisor Representatives (IARs) and RIAs. The only RIA based in Arkansas, Sowell Management has offices, RIA affiliates and advisors in […]
Media Kit – Erin Taylor, Managing Director, Marketing and Communications
Originally from New York, Erin came to Arkansas to run cross-country and track competitively at the University of Arkansas and fell in love with marketing along the way. After more than 30 years, Erin would consider herself a true seasoned marketer, beginning her career as a copywriter and eventually growing her own agency. In 2000, […]