There were only five trading sessions in 2022, and many stocks have already managed to fall or rise by more than 10%. Here's why.
Fed broke the Nasdaq
In December, the Fed announced, which will accelerate the end of the stimulus program and end the purchase of Treasury bonds in March 2022. The regulator also announced a possible increase in interest rates during the year to 0,9%.
5 January, the bank published the minutes of the December meeting. Members of the commission noted the recovery of the labor market and high inflation, caused by soft politics. Now, in the opinion FED, politics should be changed, as inflation has become a greater threat, than a pandemic.
And the members of the commission discussed the reduction of the balance, i.e. not a purchase, and the sale of bonds. In this case, the contraction can be faster., than in 2017-2019. The regulator plans to start cleaning the balance after the first rate hike, that is, in the coming months.
It was the soft policy of the Fed that became one of the main reasons for the growth of shares in the last two years.. Buying up bonds, The Fed cuts their yields, and investors are shifting to a more attractive stock market.
The regulator launched the current quantitative easing program in March 2020, when index S&P 500 fell by 30%. Already in August, the index fully recovered, and the corona crisis was the shortest bear market in history.
On such news, the yield of ten-year US Treasury bonds in the first trading week of the year rose from 1,5 to almost 1,8%. But the stock market reacted negatively to the likely tightening of the Fed's policy. S indices&P 500 и Dow Jones с 3 on 7 January fell to 1,9 And 0,3%. Lost the most Nasdaq, which includes expensive technology companies, — 4,5%.
Hedge Funds Dump Expensive Stocks
The sale in the stock market was exacerbated by hedge funds. Rising bond yields have forced money managers to dump overvalued stocks at a ten-year record pace.. As a result, Paycom papers, Service Now, Intuit, Fortinet, Accenture and others since the beginning of 2022 have fallen by more than 10%.
Shares of Salesforce and Adobe also fell by 10%. According to UBS, soon corporations will cut their software spending, and this will slow down the sales growth of Salesforce and Adobe. The bank lowered its target for Salesforce shares from 315 to 265 $, for Adobe shares - from 635 to 575 $. Recently, Bank J. P. Morgan also downgraded Adobe from Buy to Neutral due to a likely increase in interest rates..
Since November 2021, Salesforce and Adobe stocks have already fallen by 26%, to 228 i 511 $.
Cathy Wood's fast-growing stocks are not rising yet
Cathy Wood's flagship fund ARK Innovation sank along with tech stocks. In 2020, the fund grew by 150%, in 2021 - fell immediately 24%, although S&P 500 added over the same period 27%. And in the first week of 2022, ARK Innovation lost another 11%.
According to data on 6 January, 36 from 43 shares in the fund fell by more than 40% from their highs. How many companies have lost this year, who hold a large stake in ARK Innovation: Spotify, Zoom, Coinbase — 4—8%, Teladoc, Block, Twilio — 10—13%, Unity — 16%.
More than others, the papers of the developer of digital media players Roku sank, which occupy the third largest position in the Wood fund. According to Atlantic Equities, Roku's revenue growth may slow amid competition from companies like Amazon, Google и Samsung. Atlantic Equities set a target for Roku shares in 136 $.
Since the beginning of 2022, Roku has fallen by 21%, from July 2021 to 62%, to 180 $.
Cost beats growth
Selling revalued securities, investors invested in safer cyclical and value stocks. As a result, year-to-date shares of value from index S&P 500 noticeably outperforms growth stocks: +1,1 versus −4.5%.
Oil and gas sector, which in 2021 grew by 48%, already added in a week 10,6%. EOG promotions, Devon, Diamondback, Phillips 66, Schlumberger and many others went up by 10-17%.
Securities of companies from the banking industry, whose profits usually rise with interest rates, have also grown strongly since the beginning of the year. So, Bank of America shares, Wells Fargo and Citi up 9-14%.
In the industrial sector paper Boeing, General Electric, Caterpillar, Deere and all airlines have risen in price by 7-10%. But how much did the best stocks from other sectors add: Ford — 18%, ViacomCBS — 17%, Discovery — 28%.
