Fed Chairman Jerome Powell appears today before the Senate Banking Committee for his nomination hearing, then the entire Senate will vote on whether to officially confirm him to serve another 4 years at the central bank's helm. The backdrop today is the markets wrestling with the potential of a more aggressive fed tightening cycle than has been advertised. The net effect on the high growth technology stocks has been a sell-off of about 5 percent. The rotation out of technology into high quality and value stocks looks to continue.
The jump in Bond yields sparked by a more aggressive sounding Federal Reserve sent the market lower to start the new year.
The Dow Jones Industrial Average fell 0.29%, while the Standard & Poor’s 500 declined 1.87%. The Nasdaq Composite index was the hardest hit, dropping 4.53% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 0.55%.1,2,3
The Tech Wreck
The perception of a more hawkish Fed put a hard stop to the year’s positive start and pushed bond yields higher and stocks into a broad retreat.
Technology and other high-valuation shares were particularly hard hit by rising yields. Even the larger-capitalization technology companies with strong cash flows and profits were damaged. As yields trend higher, investors are questioning if these companies can lead the market in 2022. Fueling this decline was a four-day sell-off of technology companies by hedge funds that, in dollar terms, represented the highest level in more than ten years. Stocks continued to struggle into the final trading day, unsettled by a renewed climb in yields and an ambiguous employment report.4
The Fed’s Surprise
Minutes of December’s Federal Open Market Committee (FOMC) meeting were released last week and it revealed a more hawkish Fed than investors had been expecting. One surprise was that the first hike in interest rates could occur as early as March. Another, and perhaps more consequential, surprise was the idea of beginning a “balance sheet run-off” by the Fed following the first hike in the federal funds rate.5
A balance sheet run-off means that maturing bonds won’t be replaced with new bonds, the result of which is a smaller Fed balance sheet. Many investors view this step as removing liquidity from the system, a departure from market expectations that the balance sheet would remain flat during the Fed’s pivot to monetary normalization.
This Week: Key Economic Data
Wednesday: Consumer Price Index (CPI).
Thursday: Jobless Claims. Producer Price Index (PPI).
Friday: Retail Sales. Industrial Production. University of Michigan Consumer Sentiment Survey.
Source: Econoday, January 7, 2022
This Week: Companies Reporting Earnings
Wednesday: Infosys Limited (INFY).
Thursday: Delta Airlines, Inc. (DAL), Taiwan Semiconductor Manufacturing Company, Ltd. (TSM).
Friday: JPMorgan Chase & Co. (JPM), Citigroup, Inc. (C), Wells Fargo & Co. (WFC), BlackRock, Inc. (BLK).
Source: Zacks, January 7, 2022
“Many men go fishing all of their lives without knowing that it is not fish they are after.”
– Henry David Thoreau
Be on the Lookout for Tax Deduction Carryovers
Deductions or credits not used fully one tax year that may be eligible to be carried over into future years include:
Track these (or have your software do it) so that you don't forget them from one year to the next.
* This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from Credit Karma6
Know Your Numbers
According to the American Heart Association, adults should know their key health numbers, including total cholesterol, HDL (good cholesterol), blood pressure, blood sugar, and body mass index. If you’re not sure what your “numbers” are, schedule a visit with your doctor to monitor them and understand why each is important. Here’s a quick definition of each metric:
Tip adapted from American Heart Association7
I’m soft enough to soothe the skin, as well as make rocks crumble. I’m often slippery and on the move. What am I?
Last week’s riddle: I was framed, yet the man who framed me committed no crime. How is this possible? Answer: I’m a picture, and I was put in a picture frame.
Coral colony on a reef in the Red Sea, Egypt.
Footnotes and Sources
2. The Wall Street Journal, January 7, 2022
3. The Wall Street Journal, January 7, 2022
4. CNBC, January 6, 2022
5. The Wall Street Journal, January 5, 2022
6. Credit Karma, December 9, 2020
7. American Heart Association, June 24, 2021
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Weekly Market Insights: Hawkish Fed; Stocks Retreat
January 10, 2022