Week of January 10, 2022

All three major U.S. stock averages declined in the first week of 2022, with the S&P 500 and NASDAQ posting their first four-day losing streak since September.  High growth stocks particularly struggled as interest rates ticked up, focusing on the yield of the 10-year Treasury.  Last Friday, the yield on the 10-year Treasury topped 1.8% after closing 2021 at the 1.51% level.  On the week, the S&P 500 and NASDAQ dropped 1.9% and 4.5%, respectively, which was the NASDAQ’s worst weekly performance since February 2021 and only 3 percentage points from correction territory.  The Dow fared a bit better, dropping three straight sessions and only 0.3% on the week.

These U.S. stock averages look to begin the week on the downside and extending last week’s losses.

Investors are bracing for another historically high reading on inflation with the latest CPI due out Wednesday.  On a year-over-year basis, consumer prices likely surged by 7.1% in December, based on Bloomberg consensus data, accelerating even further from November’s 6.8% clip.  This would mark the fastest rate since 1982, when CPI rose as much as 8.4% year-over-year.

“Inflation is higher than expected, the Fed has signaled three rates hikes this year (the market has started to price in the possibility of four), the Omicron variant is again throwing global growth into question, and the supply-chain constraints remain an important issue,” Canaccord Genuity strategist Tony Dwyer said in a note to clients.  “Although the uncertainty surrounding these formidable challenges has created volatility, ultimately the market moves in the direction of earnings per share, which should remain positive until money availability shuts down by the Fed becoming too tight.”