NASDAQ Correction/Earnings & Fed Ahead – Monday Morning Market Memo – January 24, 2022

NASDAQ Correction/Earnings & Fed Ahead – Monday Morning Market Memo – January 24, 2022

The major stock market averages are off to a negative start so far this year, booking notable losses last week, punctuated by a large down day on Friday. For the week as a whole, the Dow Jones Industrial Average fell 4.6% to 34,265 – the Standard & Poor’s 500 Index declined 5.7% to 4,398 (down over 8% from its record) – while the tech heavy NASDAQ Composite shed 7.6% to 13,769 (its fourth consecutive weekly decline). The NASDAQ is now in correction territory, down more than 14% from its record high in November (a decline of 20% would be considered a bear market).

As uncomfortable as they are, keep in mind corrections and bear markets are inherent and inevitable in stock market investing. Catalysts behind this stock market drop include profit-taking, some high-profile earnings disappointments, expectations for multiple Federal Reserve rate hikes, and the rise in bond yields that has hit rate-sensitive tech stocks especially hard. The yield on the 10-year Treasury touched around 1.9% last week, before settling out the week around 1.75%. The jump in yields has hit tech and growth names the hardest, which are valued more on future earnings, and higher interest rates make their valuations less appealing.

During the week ahead, markets will be focused on Fed testimony and a flood of earnings reports. The Federal Reserve concludes its two-day policy meeting with a press conference on Wednesday afternoon. Investors will be looking for clues/indications on how much and how frequently the Fed will be raising rates. Current expectations are the first rate hike will come in March and be for ¼ point, with an additional 3 hikes during the remainder of the year. The change in overall Fed policy is an effort to fight inflation, and financial markets are on edge to gauge how combative/hawkish they will be. In addition to the Fed this week, we’ll be getting a deluge of earnings reports to digest.

Earnings Season is in high gear, with about ½ of the 30 components in the Dow Jones Industrial Average scheduled to report results. Major companies reporting this week include 3M, International Business Machines, American Express, General Electric, Johnson & Johnson, Tesla, AT&T, Microsoft, Verizon, Boeing, Intel, Apple, Mastercard, McDonald’s, Visa, Caterpillar, Chevron, and Colgate -Palmolive.

While the week ahead will likely be volatile as investors watch for policy guidance from the Federal Reserve and digest a slew of earnings reports – remember that we believe in time in the market as opposed to timing the market – and we consider investing a marathon, rather than a sprint!

All the best – Southport Station Financial Management, LLC