January 10, 2022
Good morning,
The first week of the year, following what I thought was a surprising Santa Rally, is best described in one word: consolidation. The S&P 500 was off only -1.87% on the week, but growth bore the brunt of it, with the NASDAQ down -4.52% comparatively. Tech (growth) is the largest component of the S&P 500 by capitalization and is now -7.9% off its all-time high set only 6wks ago. The Russell 2000 Index, most closely associated with value stocks, did not escape unscathed last week. It was down -2.91% on the week and now sits -11.34% off its all-time high from 7wks ago.
So far, the consolidation appears to be rotational in nature and not the head-for-the-hills kind, where everything gets sold. Higher rates appears to be what’s behind this consolidation – tougher on growth, supportive of financials. See chart below (Bloomberg) for last week’s sector performance – quite a range of returns.
Futures were relatively quiet overnight until early this morning when Goldman forecasted 4 rate hikes this year and a faster Fed balance sheet runoff. Translation – higher rates than were expected just last week. The equity market reaction – S&P Futures down -.70%, Nasdaq Futures off -1.25%, and the VIX is quietly moving above 20 again. The consolidation continues.
Be well,
Mike