The Bears | January 21, 2022 | FFS

Markets sold consistently across the week. Is there more red to expect in coming weeks?

Monday S&P 500 1.20% | NASDAQ 1.79%

Happy Tax Day! Retail sales expanded more than expected in March. Three major companies reported earnings, all three met expectations, all of which were financials. This was not surprising as financials usually head up earnings season. They also give us a good indication of how earnings season should go. Retail sales, however, took center stage as a strong consumer reduces the need for Federal Reserve Board (FRB) rate cuts. This caused an outsized move downward as investors anticipate less stimulus for 2024.

Tuesday S&P 500 0.21% | NASDAQ 0.12%

Housing data for March came in weaker than market expectation. Ten major companies reported earnings, with two missing expectations. Although mild, the losses continued. FRB Chair Powell indicated that inflation’s recent strength does not give the board confidence to start easing policy.

Wednesday S&P 500 0.58% | NASDAQ 1.15%

11 major companies reported earnings on the day, with three missing expectations. Focus was squarely on earnings as there was little economic data on the day. Tech stocks took a hit as AI chip orders for a specific company did not meet expectations. As would be expected this hit the tech heavy NASDAQ harder than the S&P 500.

Thursday S&P 500 0.22% | NASDAQ 0.52%

Initial unemployment claims remain benign. Existing home sales also slowed in March. 11 major companies reported earnings on the day, with one missing expectations. Markets were down for the day, but in a less dramatic fashion. Robust employment data typically is not favorable information when hoping for an FRB rate cut (as investors are).

Friday S&P 500 0.88% | NASDAQ 2.05%

Six major companies reported earnings on the day, with one missing expectations. NASDAQ led the way lower as Tech and communications got hit hardest. The best performers on the day were defensives, like utilities, healthcare, staples, and also financials.

Conclusion S&P 500 3.05% | NASDAQ 5.52%

The week was bloody. There was not a single up day for the S&P 500 or the NASDAQ Composite. The moves were not founded in fundamental data, as earnings did well. Some forward guidance shows warning of slowing revenues throughout the year, but that is normal for the last two years. Economic data, which signals the economy is doing well, has actually pushed stocks lower. The stronger the economy, the less likely the FRB is to act in reducing rates. The sell-off has extended to approximately 6%. It may take a breather in the coming days but expect that we are not done.

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The bears are asserting themselves right now. Will the bulls be back this week to fend off the Bearish trend?

Monday

Happy Martin Luther King Jr. Day!

Tuesday

Markets opened the week as they had the prior week. Volatility was up and markets were down early! One concern was the potential for flight disruptions as wireless carrier giants roll out 5G near airports. The use of 5G has companies utilizing airwaves that had previously not been used. The concern being that they could provide potential interference for airlines.

Wednesday

The S&P 500 opened higher on Wednesday, but quickly faded into the red. At the open, equities were higher and fixed income was higher as well. Typically buying in fixed income is viewed as a defensive move. The equity sell-off that occurred into the close did not get accompanied by a sell-off in fixed income. Those continued to gain. This is a signal of perhaps a more bearish trend to come. The S&P 500 ended up losing 0.97% on the day. The NASDAQ, which lost 1.15% on the day, entered technical correction territory (being down more than 10% from it’s high). The S&P 500 is off 5.5% from it’s high on January 3^rd.

Thursday

Markets opening strongly in the green. The S&P 500 was up more than 1.5% early on. Markets began to fade around 12:30PM EST and never looked back. The S&P 500 ended up falling 1.19% and the NASDAQ led the way, down 1.39%. Most of the losses came in the final hour of trading.

Friday

Movement within markets continued into the red on Friday, simply reinforcing the action from the entire week. Interest rates at the 10-year level fell. This is a more traditional reaction to an equity sell-off. The S&P 500 ended up dropping another 1.89%. The Nasdaq continued to lead the way, being down 2.72%.

Conclusion

The S&P 500 lost 5.68% last week and is down 8.31% from its January 3^rd closing high. The Nasdaq 100, which has more growth focused positions, lost 7.49% last week and 12.88% from its November high. The controlled nature of this sell-off tends to reflect a more measured corrective environment. With the Federal Reserve Board meeting next week, all eyes will be on interest rates!