The main takeaway:
- Stock sells off then bounces on a roller coaster on Monday
- Cryptocurrencies continue to sell as investors shy away from riskier assets
- Gold fails to join defensive groups or hedge against inflation
Stock index futures are pointing higher as investors hope to build on Monday’s recovery. Monday was a bustling day as the stock market lived up to its roller coaster reputation. However, with Federal Reserve Chair Jerome Powell meeting the Senate today, investors are still a bit choppy.
Stocks sold off at the open, with the S&P 500 (SPX) down 1.85% in the first hour, but bounced off intraday lows to trim much of its losses. The S&P 500 closed down just 0.14%. Nasdaq
As expected on a bearish day, the defensive sectors were the best performers in the morning when each sector was in the red. Utilities, healthcare, and basic consumer goods were lower. However, by the end of the trading day, healthcare and technology closed in the green. Last week, the energy and financial sectors were among the strongest as oil prices and the 10-year yield (TNX) continued their five-week highs, but both investments reached a historic level of congestion that could halt some growth.
Despite healthcare being one of the strongest sectors, Cardinal Health
Some of the other stocks in the news included Airbnb (ABNB), which fell 3.22% after Piper Sandler downgraded its rating. nike
This morning, Illumina
Let’s go back to interest rates, Goldman Sachs
Goldman isn’t the only investment company looking for higher interest rates. Jamie Dimon, CEO of JP Morgan (JPM), told CNBC that he would be surprised if the Fed raised interest rates only four times in 2022. The 10-year yield rose to 1.81% before closing at 1.77%.
With interest rates and inflation on everyone’s mind, today’s Senate Banking Committee hearing that will feature Federal Reserve Chairman Jerome Powell is likely to attract a lot of attention. Consumer and voter interest in rising inflation has thrown up snags in rebuilding President Joe Biden’s better plans and frustrated many politicians looking to be re-elected in November 2022. And while it’s still very early in the year, the weaker stock market That can add to a growing list of frustrations. Therefore, Tuesday’s session is likely to see questions along partisan lines. The real test may come on Wednesday when the Consumer Price Index (CPI) is released, and the latest inflation numbers come out.
On the positive side, after yesterday’s roller coaster, many of the big houses repeated their top targets for the S&P 500 in 2022.
Encryption bit has been done
It seems that investors are becoming more and more risk conscious and are selling off growing stocks in favor of value stocks and technology in favor of energy. Investors are also selling cryptocurrencies. Bitcoin, the largest cryptocurrency, fell 6% on Monday morning, trading below 40,000 for a short time to match the September low. The second largest cryptocurrency is Ethereum, which is also down 7% on Monday morning, topping $3,000 for a short period. By contrast, Bitcoin and Ethereum topped in November 2021 at $67,130 and $4,761 respectively. Bitcoin managed to correct the ship throughout the day and was 0.03% higher at the close of the stock market. Ethereum trimmed some losses but remained 2.02% lower at the close.
Despite the trend towards “risk off”, small-cap stocks have not been hit as hard as other riskier assets. Don’t get me wrong, the Russell 2000 Index (RUT) is down 0.40% on Monday after rising from a 1.52% loss earlier in the day. The small cap index is still down about 4.5% since it rose to open the year last Monday. However, this performance is not much different from the S&P 500. In addition, the index tested the same level of support that it held during 2021 and bounced back from that level again on Monday. If support continues to hold, this could be good news for small businesses.
The common denominator here could be the strength of the US dollar. The US Dollar Index ($DXY) traded 0.22% higher on Monday, rising more than 7% throughout 2021 against a basket of currencies that do not include cryptocurrencies. As the name suggests, cryptocurrencies are considered an alternative currency and are generally expected to move against the US dollar. While this Not That being the case, it appears that rising US Treasury yields, which tend to strengthen the dollar, have at least weakened the cryptocurrency in recent months.
Moreover, small-cap stocks tend to perform better during a rising dollar because they are less likely to rely on global sales than their larger multinational competitors. Instead, they generally focus on domestic sales in the United States. A strong dollar tends to make US-made products more expensive for foreign buyers, which could lead to lower sales as consumers look for cheaper alternatives.
Closer look: Looking beyond sectors to a more nuanced view, investors have been buying retail food, biotechnology, tobacco, gold, and pharmaceuticals. Looking at the S&P 500, we can determine that some of these companies include Kroger
All of these companies fall into the defense groups, except for Newmont, which falls under the materials sector. While the material isn’t usually considered a defensive move, many investors view gold as a safe haven during rough waters, so a gold miner like Newmont makes sense in this context.
Gold Coast: Investors used to look at gold as an inflation hedge, but over the past year, we’ve seen a lot of inflation but not a lot of gains in gold. While gold futures were up on Monday and have seen some significant volatility over the previous year, they are still trading about 3% lower than they were a year ago.
The attraction to the potential of cryptocurrencies may be the reason why gold is underperforming at a time when it is usually expected to shine. The money that would normally move into gold could be Bitcoin, Ethereum, or any other cryptocurrency. However, if investors are buying up gold mining companies, it is likely that gold is not too far behind.
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