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After a strong first couple trading days of 2022, markets are now down far enough for investors to begin contemplating whether correction territory is in the tea leaves for the major indexes. Both the Nasdaq and S&P 500 have closed lower in four straight sessions; three for the Dow. And the pre-market tape at this hour shows more of the same.
We can see the turning point quite clearly: last Wednesday’s release of the most recent meeting of the Federal Open Market Committee (FOMC) unveiled some unexpected tightening being contemplated in fiscal policy at the Fed. Whereas initially, when the report and subsequent presser from Fed Chair Jay Powell set market participants somewhat at ease — where he pointed out a faster rate of asset purchase tapering does not necessarily coincide with directly raising interest rates — the minutes showed the voting Fed members discussing something else: draining the $9 trillion balance sheet.
This automatically triggered investors that he Fed was deceptively more hawkish, basically admitting it was wrong to let inflation grow its tendrils as long as it did last year and won’t largely be going away on its own (i.e. via supply chain easing which will take pricing back down). Though it looks to be a responsible move by the Fed, albeit perhaps something of a mea culpa, it jostled the market on several levels right away — including the 10-year bond yield heading back up.
This 10-year is now up to 1.77% this morning, more than 250 basis points higher than it was prior to the Fed minutes release. Goldman Sachs ((GS - Free Report) this morning now expects four rate hikes in 2022, not the consensus three. And all this before contemplating how the Omicron variant will affect the economy — not just here at home, but throughout the entire global trade network.
Right now, the Dow is -95 points, the S&P 500 -30 and the Nasdaq -180 points. This remains the posture of last week, and as long as evidence of Fed hawkishness — in the very week Chair Powell is reinstated for his second term — continues, we’re likely to see market participants in a sullen move.
Two possible remedies might also be seen from this vista: Wednesday’s Consumer Price Index (CPI) and Friday’s Q4 earnings reports for big banks JPMorgan ((JPM - Free Report) , Citigroup ((C - Free Report) and Wells Fargo ((WFC - Free Report) . The CPI, while staying rather growthy, is expected to dial back some of the heat to +0.5% from the prior month’s +0.8%. The banks’ Zacks ranks are a little more opaque: while Wells is currently a Zacks Rank #2 (Buy), JPMorgan and Citi are both Zacks Rank #3 (Hold).
Last week, the Dow dipped -0.3%, the S&P 500 was -2.2% and the tech-heavy Nasdaq -4.5%. Because we feel the underlying domestic economy is strong, and a bounce-back in market sentiment can be remedied with better-than-expected earnings reports, it may be a good idea to have a wish list put together, so that you may buy into terrific companies at lower price points. See, for example, today’s Bull of the Day, NVIDIA ((NVDA - Free Report) .
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Market Futures Lower Ahead of Opening
After a strong first couple trading days of 2022, markets are now down far enough for investors to begin contemplating whether correction territory is in the tea leaves for the major indexes. Both the Nasdaq and S&P 500 have closed lower in four straight sessions; three for the Dow. And the pre-market tape at this hour shows more of the same.
We can see the turning point quite clearly: last Wednesday’s release of the most recent meeting of the Federal Open Market Committee (FOMC) unveiled some unexpected tightening being contemplated in fiscal policy at the Fed. Whereas initially, when the report and subsequent presser from Fed Chair Jay Powell set market participants somewhat at ease — where he pointed out a faster rate of asset purchase tapering does not necessarily coincide with directly raising interest rates — the minutes showed the voting Fed members discussing something else: draining the $9 trillion balance sheet.
This automatically triggered investors that he Fed was deceptively more hawkish, basically admitting it was wrong to let inflation grow its tendrils as long as it did last year and won’t largely be going away on its own (i.e. via supply chain easing which will take pricing back down). Though it looks to be a responsible move by the Fed, albeit perhaps something of a mea culpa, it jostled the market on several levels right away — including the 10-year bond yield heading back up.
This 10-year is now up to 1.77% this morning, more than 250 basis points higher than it was prior to the Fed minutes release. Goldman Sachs ((GS - Free Report) this morning now expects four rate hikes in 2022, not the consensus three. And all this before contemplating how the Omicron variant will affect the economy — not just here at home, but throughout the entire global trade network.
Right now, the Dow is -95 points, the S&P 500 -30 and the Nasdaq -180 points. This remains the posture of last week, and as long as evidence of Fed hawkishness — in the very week Chair Powell is reinstated for his second term — continues, we’re likely to see market participants in a sullen move.
Two possible remedies might also be seen from this vista: Wednesday’s Consumer Price Index (CPI) and Friday’s Q4 earnings reports for big banks JPMorgan ((JPM - Free Report) , Citigroup ((C - Free Report) and Wells Fargo ((WFC - Free Report) . The CPI, while staying rather growthy, is expected to dial back some of the heat to +0.5% from the prior month’s +0.8%. The banks’ Zacks ranks are a little more opaque: while Wells is currently a Zacks Rank #2 (Buy), JPMorgan and Citi are both Zacks Rank #3 (Hold).
Last week, the Dow dipped -0.3%, the S&P 500 was -2.2% and the tech-heavy Nasdaq -4.5%. Because we feel the underlying domestic economy is strong, and a bounce-back in market sentiment can be remedied with better-than-expected earnings reports, it may be a good idea to have a wish list put together, so that you may buy into terrific companies at lower price points. See, for example, today’s Bull of the Day, NVIDIA ((NVDA - Free Report) .