US stocks fell on Thursday in a choppy trading session, weighed by investor concerns about the impact of the Federal Reserve on the markets if it raises interest rates faster than previously expected.
The three major US indexes ended the session lower, erasing intraday gains. The S&P 500 fell 4.53 points, or 0.1%, to 4,696.05. The Nasdaq Composite Index fell 19.31 points, or 0.1%, to 15,080.86. The Dow Jones Industrial Average lost 170.64 points, or 0.5 percent, to 36,236.47.
The markets started in 2022 with volatile trading. Volatility accelerated on Wednesday after the minutes of the Federal Reserve’s latest meeting showed that officials are eyeing a faster timetable for raising interest rates. This sent stocks lower, with the high-tech Nasdaq posting its biggest one-day percentage loss since February.
The volatility continued on Thursday, with major US indices swinging between gains and losses for parts of the session before finally ending lower. The S&P 500 and Nasdaq both closed lower for the third day in a row, with the Nasdaq losing 4.7% during the period.
The yield on US 10-year Treasuries rose for a fourth day in a row, reflecting investors’ conviction that the rapidly spreading Omicron variable would not prevent the Fed from tightening monetary policy to tame inflation. The yield on the 10-year note rose to 1.733%, the highest since March 31, up from 1.703% on Wednesday.
Among the 11 sectors of the S&P 500 Index, the energy and financial sectors emerged as the two leaders, up 2.3% and about 1.6%, respectively. American bankAnd
Wells Fargo and Citigroup are up 2% or more, getting a boost from higher bond yields.
Small-cap stocks have also been a bright spot. The Russell 2000 index, which measures the performance of these companies, rose 0.6%.
Technological volatility and growth stocks have been plagued. Tesla lost $23.42, or 2.2%, to close at $1064.70. Netflix fell $14.23 or 2.5% to close at $553.29. Facebook’s parent platform Meta Platforms gained $8.29, or 2.6%, to close at $332.46.
Fund manager Cathy Wood’s flagship ARK Innovation ETF lost 0.6% to close at its lowest level since September 2020.
Meme’s stock ended in mixed territory, with GameStop up $1.66, or 1.3%, to $131.03. Its shares jumped into trading after hours after the company said it would establish cryptocurrency partnerships and develop a market for non-fungible tokens.
AMC Entertainment lost 29 cents, or 1.3%, to close at $22.46. Its shares also rose after hours. Stocks popular among retail investors have had a rough start this year.
“As you move from maximum liquidity to policy that is becoming less accommodating, you want less exposure to those more speculative areas of the market,” said Keith Lerner, chief investment officer at Truist Advisory Services. “One of our main themes for coming into this year is that we are positive but realistic. On the positive side, we still think that the markets have an uptrend based on a strong economy and strong earnings. But the realistic side is… that we expect more regular pullbacks.”
Investors are bracing for the possibility of a choppy wave in tech stocks, which has driven the market higher since the early recession of the pandemic in 2020. Shares of companies like Apple and Microsoft have benefited from lower interest rates as well as huge profits helped by the switch to working from home.
However, it looks like prices will rise, most likely around the time of March. Although investors say stocks can continue to rise in a period of higher prices that reflects the growing economy, technology stocks and momentum stocks like Tesla are seen as weak.
“We could be on a tough road,” said Lars Skovgaard Andersen, investment strategist at Danske Bank Wealth Management. Andersen expects the volatility to continue at least until tech companies start reporting earnings later this month, which he said may encourage investors to buy back those shares.
Andersen sees the sell off as a buying opportunity but intends to target the broad market and European banks that will benefit when interest rates rise, rather than US technology.
Money managers say the catalyst for Wednesday’s sell-off and continued market volatility on Thursday was the publication of the minutes of the Federal Reserve’s December monetary policy meeting. They showed that officials believed that rising inflation and a tight labor market could call for short-term interest rates to be raised “sooner or faster than participants previously anticipated”.
The minutes also said that some officials believe the Fed should start reducing its $8.76 trillion portfolio of bonds and other assets relatively soon after starting to raise interest rates. Investors pushed yields on government bonds higher. This, in turn, hurts technology stocks whose future cash flows are less valuable on today’s terms when a higher discount rate is applied.
Mr. Lerner, of Truist, expects further gains for financial and energy stocks as the economy and labor market continue to grow, he said. Among technology stocks, it is currently leaning toward more high-quality names with larger market capitalization and solid earnings.
“We think there will be sharp rotations in the sector throughout the year, and the timing of that will be challenging,” he said. “Part of our strategy is to have an ingenious approach, look at the best areas on the cyclical side, and then pair that with some technology on the growth side.”
On the economic front, Labor Department data showed that there were 207,000 initial claims for unemployment, a proxy for layoffs, last week. Labor market tightening is one factor behind the Fed’s move to raise interest rates sooner than the central bank previously indicated.
The jobs report for December will be released from the Labor Department on Friday. Economists polled by the Wall Street Journal expect the US to have added 422,000 jobs.
Commodity markets were mixed on Thursday. Brent crude futures, the benchmark in energy markets, rose 1.5 percent to $81.99 a barrel after violence erupted in Kazakhstan, a major oil producer. Precious metals, which usually fall when interest rates rise, lost ground, with front-month silver futures down 4.2% to $22.17 an ounce.
Global markets ended lower after receiving cues from the selling that hit US markets on Wednesday. The Stoxx Europe 600 Index fell 1.3%. Japan’s Nikkei 225 lost 2.9% and China’s Shanghai Composite fell 0.3%.
Write to Caitlin McCabe at email@example.com and Joe Wallace at firstname.lastname@example.org
Corrections and amplifications
Facebook’s Meta Platforms were misspelled as Meta Platorms in an earlier version of this article. (corrected Jan 6)
Copyright © 2022 Dow Jones & Company, Inc. all rights are save. 87990cbe856818d5eddac44c7b1cdeb8