Stock Market Today: January 14, 2022
David M. Reimer | 1/14/2022
Before the Bell – The major U.S. stock market indexes appear on track to close out this week with additional losses, extending the modest downdraft established thus far this year. Today’s futures point to a soft opening.
On Tuesday, in a Senate hearing on his nomination for another term, Federal Reserve Chairman Jerome Powell reiterated the central bank’s plans to raise short-term interest rates and possibly begin reducing its bond balance sheet this year. The lack of surprises helped to lift share prices the following day, but even so, new readings on consumer and producer prices indicated sustained high inflation, causing investors to worry that the Fed might decide to move more aggressively on monetary policy than it has been guiding. Equities markets visibly lost ground on Thursday, with the only sectors posting gains for the day being utilities, consumer staples, and industrials.
This morning saw the release of soft advanced U.S. retail sales estimate figures, reflecting continued supply-chain and inflationary stresses on the economy. Buffering those figures, however, were declining unemployment, higher wages, and elevated savings accounts. Information on industrial production and capacity utilization, as well as manufacturing and trade, are on tap for later this morning, as well. This data will probably show that the latest variant of the coronavirus, Omicron, is constraining supply-chain improvement, the return of employees to work, and the overall economy’s progress towards normalcy.
In the meantime, as we go to press, investors and analysts are reviewing mixed earnings reports from banking giants JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and Bank of America (BAC). The banks’ December-quarter results and management’s forward-looking guidance will set the tone for stock trading for the remainder of today. These financial institutions’ reports should also provide a good indicator of the economy’s near-term prospects. We are optimistic that corporate earnings will stay solid this year due to healthy demand for durable goods and services. Still, profitable growth may be more subdued in 2022 compared to 2021, likely limiting additional stock-price appreciation.
Stock market sector rotation continues. Given the likelihood of rising interest rates, investors are selling their holdings in high-flying tech issues, especially those with no earnings and rich price-to-sales ratios, such as ZScaler (ZS), CrowdStrike (CRWD), and Datadog (DDOG). Share prices of the largest techs—that is, Meta Platforms (FB), Apple (AAPL), Amazon.com (AMZN), Netflix (NFLX), and Alphabet (GOOG)—have likewise been under some selling pressure. Increasing interest rates have a negative effect on tech companies’ long-term earnings growth prospects. Investors are cashing in on tech stock gains and reallocating funds toward cyclical and value issues, such as Boeing (BA), Caterpillar (CAT), Exxon Mobil (XOM), Deere & Co. (DE), Cummins (CMI), and Honeywell (HON), which have traditionally performed better in a rising interest-rate environment. We note that significant dividend payers are attractive alternatives to bonds, which decline in price as yields move upward. On balance, the major market indexes should post decent advances for all of 2022. – David M. Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.