Weekly Update

for Week Ending January 21^st, 2022

WEEKLY MARKET SUMMARY

Global Equities: It was a rough week in equity markets, with the Nasdaq getting punished yet again, officially falling into correction territory down over –10% from its highs. The Nasdaq dipped -7.6% for the week, while the S&P 500 was down -5.7% and the Dow Jones Industrial Average lost -4.6%. International stocks fared better, with Developed Markets down -3.4% and Emerging Markets continuing their relative strength with a –2.2% decline.

Fixed Income: 10-Year Treasury yields reached 1.9% but fell back quickly to 1.75% as investors flushed equity holdings to hide out in the safe-haven bonds. High yield bonds slipped during weekly trading, down around –0.8% while investors pulled over $2.1 billion out of high yield bond mutual funds and ETFs. Investment grade bond funds had net inflows of $639 million, per Refinitiv Lipper data.

Commodities: Oil prices continued to display strong upward momentum but could not decouple from the broader market selloff on Friday, giving back some of their weekly gains to finish relatively unchanged at $84.40/barrel. Despite the Friday slip, oil remains on a five-week winning streak of new weekly highs.

WEEKLY ECONOMIC SUMMARY

Housing Bubble Risks? The residential real estate market cooled off slightly after a scorching hot summer, but the bubble may be reinflating thanks to a big uptick in mortgage rates as the market prepares for the Fed to hike rates in March. The average 30-year mortgage rate spiked from 3.11 percent in December to 3.64 percent in January, the largest monthly increase in nine years. Buyers rushing to lock in before rates rise any higher are pushing up prices and starting bidding wars in many regions of the country.

Jobless Claims Up: Weekly jobless claims unexpectedly rose by 55,000 to 286,000, surprising analysts who were expecting just 207,000 new claims. The surprise increase could be related to the uptick in COVID cases as employers struggle with the impact of the omicron variant.

Earnings Update: Earnings season is upon us, and if the first batch of reports is any indication, it is going to be a bumpy ride. Bank stocks were mixed with large investment banks such as Goldman Sachs (GS) and JP Morgan (JPM) disappointing on trading income, while Wells Fargo (WFC) and Bank of America (BAC) fared better. The big story, however, was Netflix (NFLX), which beat estimates handily, but forecasted slowing subscriber growth, leading to a severe –25% selloff in shares. Next week will be a big moment for the Nasdaq, with Apple (AAPL) and Microsoft (MSFT) both reporting.

CHART OF THE WEEK

Our Chart of the Week once again looks at the Nasdaq Composite index. Last week we noted that the chart suggested caution, as the Nasdaq had yet to follow through on its tentative bounce from its 200-day moving average (red line). The weak bounce was followed this week by a decisive plunge below the 200-day moving average, putting the Nasdaq in correction territory, down over –10% from the highs. While there appears to be some long-term support at current levels (see February and April 2021 highs), the tech-heavy Nasdaq is clearly out of favor, with the threat of rising rates putting bears firmly in control for now.

Chart courtesy of StockCharts.com. Commentary by Hanlon Investment Management.

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