U.S. stocks' losing streak is continuing this morning, with all three of the major averages falling on anticipation of higher interest rates ahead of tomorrow's Federal Reserve meeting and increasing tensions surrounding Russia and Ukraine.
- U.S. stocks' losing streak is continuing this morning, with all three of the major averages falling.
- Anticipation of higher interest rates ahead of tomorrow's Federal Reserve meeting and increasing tensions surrounding Russia and Ukraine are hammering stocks.
- Bonds rose, while oil and cryptocurrency prices fell.
Last week, the Nasdaq posted its biggest weekly decline since March 2020 on its way to a fourth-straight weekly decline. The Dow Jones Industrial Average and S&P 500 have dropped for three straight weeks—the Dow lost 4.6% last week, and the S&P 500 fell 5.7%.
After a solid 2021, when all three major indexes notched double-digit gains, stocks this year are hitting the brakes as the Federal Reserve signals that it will tighten monetary policy with higher interest rates. Fed policymakers meet Tuesday, Jan. 25, to discuss plans for a possible rate hike in March, which would be the first increase in three years.
Geopolitics are also weighing down stock prices with fears of a Russian attack on Ukraine growing. The U.S. State Department ordered families of embassy personnel in Kiev to depart, and NATO said that it will send ships and planes to member countries in Eastern Europe. The yield on the 10-year Treasury note rose to 1.72% as riskier assets dropped. The benchmark rate has jumped about one-quarter of a percentage point this year.
Earnings This Week, Purchasing Managers' Indexes
Investors will also digest earnings this week from giants like Apple Inc. (AAPL), Microsoft Corporation (MSFT), and Tesla, Inc (TSLA). Today, Halliburton Company (HAL), International Business Machines Corporation (IBM), and Koninklijke Philips N.V. (PHG) report their latest results.
This morning, data firm IHS Markit reports its Manufacturing and Services Purchasing Managers’ Indexes (PMIs) for January. The consensus estimate is for a reading of 56 for the manufacturing PMI and 54 for the services PMI. Both figures are lower than December's readings and off their record peaks from the middle of last year.
Today's Headlines: Quick Hits
Activist investor Blackwells Capital is calling on Peloton Interactive, Inc. (PTON) to fire its CEO and explore a sale of the company. Peloton's stock price plunged 80% from its high as growth has stalled.
Activist investor Nelson Peltz's Trian Fund Management has acquired a stake in Unilever PLC, (UL), The Wall Street Journal reported. The move adds pressure to the packaged food and consumer goods giant after it failed in its $68 billion bid for GlaxoSmithKline PLC (GSK).
Kohl’s Corporation's (KSS) stock price is surging as the retailer faces two possible takeover offers. Activist hedge fund Starboard Value has reportedly made a $9 billion bid for Kohl's, while Sycamore Partners is also considering a bid.
Alphabet Inc.'s (GOOG) Google is asking a judge to dismiss most of a Texas antitrust lawsuit that accused the search giant of abusing its dominance of the online advertising market. Google said in its court filing that the states involved in the lawsuit failed to show that it illegally worked with Facebook to counter "header bidding," a technology that publishers developed to make more from ads placed on their websites.
Spider-Man: No Way Home edged ahead of Scream to retake the top spot at the domestic box office. Sony Group Corporation's (SONY) Spider-Man movie took in another $14 million in its sixth weekend at the box office.
Rate Hikes and Stocks: The Big Story
As the Nasdaq comes off its worst week since March 2020, investors will confront this week's Federal Reserve policy meeting, where officials are expected to signal that they will raise interest rates in March and shrink their balance sheet soon thereafter.
The Goldman Sachs Group, Inc. (GS) has said the Fed could take some tightening action at every meeting until the inflation picture changes and suggested that the Fed is likely to start cutting its balance sheet by $100 billion per month starting in July.
However, for the stock market, history indicates that 2022 is likely to end in better shape than it started. U.S. stocks have historically performed well during periods when the Fed hikes rates, as a growing economy tends to support corporate profits and the stock market. Stocks have risen at an average annualized rate of 9% during the 12 Fed rate hike cycles since the 1950, and delivered positive returns in 11 of those instances, according to financial firm Truist. The one exception was during the 1972-1974 period, which coincided with a recession.
Analysts are also bullish on the market for this year. On average, strategists project the S&P 500 will finish 2022 at 4,982, 13% above its current level, according to data compiled by Bloomberg.