Stock Market News for Jan 21, 2022

Wall Street continued to fall sharply on Thursday after a choppy trading season as investors remained concerned regarding recent spike in government bond yields. Geopolitical tensions and some weak economic data also dented market participants’ confidence. All three major stock indexes ended in red.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) dropped 0.9% or 313.26 points to close at 34,715.39. Notably, 26 components of the 30-stock index ended in red while 6 in green. The major loser of the index was Dow Inc. DOW that fell 3.4%. Dow currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The tech-heavy Nasdaq Composite finished at 14,154.02, sliding 1.3% or 186.23 points due to weak performance by large-cap technology stocks. The tech-laden index had entered into the correction territory on Wednesday for the first time since Mar 8, 2021.The index fell below its 200-day moving average for the first time since Apr 2020.

Meanwhile, the S&P 500 tanked 1.1% to end at 4,482.73. Ten out of eleven sectors of the benchmark index closed in negative zone while one in the green. The Technology Select Sector SPDR (XLK), the Materials Select Sector SPDR (XLB), Industrials Select Sector SPDR (XLI) and the Consumer Discretionary Select Sector SPDR (XLY) tumbled 1.3%, 1.5% 1.3% and 1.8%, respectively.

The fear-gauge CBOE Volatility Index (VIX) was up 7.3% to 25.59. A total of 11.9 billion shares were traded on Thursday, higher than the last 20-session average of 10.1 billion. Decliners outnumbered advancers on the NYSE by a 2.75-to-1 ratio. On Nasdaq, a 2.39-to-1 ratio favored declining issues.

Wall Street Tumbles on Rate-Led Turmoil

The yield curve of the U.S. government bonds has stiffened significantly in anticipation of stricter measures taken by the Fed to combat soaring inflationary pressure. Year to date, the yield on the benchmark 10-Year U.S. Treasury Note jumped 30 basis points.

The yield on the short-term U.S. 2-Year Treasury Note, which is most sensitive to a Fed rate hike, surged more than 1% this week, for the first time since February 2020. The yield on the long-term U.S. 30-Year Treasury Note also spiked recently.

Higher market risk-free returns mean a higher discount rate for future cash flows from stock investing. This will affect the growth-oriented stocks — especially the technology and consumer discretionary stocks — as these stocks generally provides higher returns over a long term.

Moreover, these companies depend on easy access to cheap credit to expand their businesses. Market participants are expecting that the Fed may hike the benchmark leading rate for the first time since March 2020. Notably, the Fed reduced the market interest rate to the current level of 0-0.25% to ensure adequate liquidity in the system to combat the unprecedented economic devastation led by the pandemic.

Moreover, geopolitical tensions between Russia and Ukraine, the UAE and rabble extremists fueled a sharp rise in crude oil prices. Meanwhile, the central bank of China reduced its prime lending rate in order to restore demand in the economy.

Economic Data

The Department of Labor reported that weekly jobless claims jumped to 286,000 for the week ended Jan 20, its highest since the week ended on 16, 2021. The consensus estimate was 224,000. Previous month’s data was revised upward from 230,000 to 231,000.

Continuing claims (for those who have already received benefit and reported one week before the headline data) increased 84,000 to 1.64 million. However, the four-week moving average of continuing claims declined by 55,250 to 1.664 million, the lowest since the week ended Apr27, 2019. Total recipients of all unemployment compensation programs rose by 180,114 to 2.13 million, according to data through Jan. 1.

The National Association of Realtors reported that existing-home sales decreased 4.6% between in December to a seasonally-adjusted, annual rate of 6.18 million units. The consensus estimate was 6.43 million units. November’s data was revised upward to 6.49 million units from 6.46 million units reported earlier. Year over year, existing home sales dropped 7% in December.

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