The market is in a sell off; a pretty sharp one. The most damaged companies are those whose stock prices were not well supported by the actual earnings. If there was a large gap between the price of the stock and the underlying earnings of the company, that gap has narrowed. The companies who are well-supported by their earnings are faring much better although all stocks are down from where they were just a couple of weeks ago.
Some investors will be tempted to panic a bit and to try and protect themselves from further declines. Others will be tempted to hunt for bargains of good companies trading at discount. Corrections in the market are not if, but when. When appears to be now. We must remind ourselves that downturns in the market are never welcome, but are normal.
How long do corrections last? Most are very short-term only lasting a few weeks or a few months. More rare are those corrections that last a year or more. We won’t know which this is until after the fact, but put in the context of a long-term investment, even a long correctional period is tolerable.
Please contact us if you have concerns. We can help you better understand how a negative market is impacting you and your investments specifically. We are here and ready to assist in managing through this difficult market environment.
Stocks extended their January retreat as worries over inflation and rising bond yields continued to exert downward pressure on prices.
The Dow Jones Industrial Average slid 4.58%, while the Standard & Poor’s 500 sank 5.68%. The Nasdaq Composite index dropped 7.55% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 0.61%.1,2,3
Another Turbulent Week
After the holiday weekend, stocks found little respite from this month’s selling pressures. The week began with the 10-year Treasury yield hitting a two-year high that triggered a broad retreat in stocks, with technology and other high-growth companies bearing the brunt of the losses. The Nasdaq Composite officially entered correction territory and closed below its 200-day moving average for the first time since April 2020.4
Stocks struggled throughout the week, rallying in early trading on both Wednesday and Thursday on solid corporate earnings and stabilizing bond yields, only to end lower on late-day selling. While last year may have been distinguished by “buying on the dip,” this week reflected a different mindset, “selling on the rebound.” Stocks extended their losses in the final hours of the Friday trading session to conclude a difficult week.
Rate Hike Expectations Rise
Recent market volatility has stemmed predominantly from inflation concerns and how aggressive the Fed will be in fighting it. This reaction reflects the market's pricing of rate hike probabilities, and their estimation of the Fed's reaction.
Last week's interest rate futures suggested that investors expect four or five rate hikes this year, up from three to four the previous week. Markets are pricing a 32% probability of 4-5 rate hikes by December and a nearly 28% probability of 5-6 rate hikes by year-end. Of course, the Fed will act independently of the market, but it provides insight into the recent run-up in yields and continuing pressure on high-growth stock valuations.5,6
This Week: Key Economic Data
Monday: Purchasing Managers’ Index (PMI) Composite Flash.
Tuesday: Consumer Confidence.
Wednesday: New Home Sales. FOMC Announcement.
Thursday: Gross Domestic Product (GDP). Durable Goods Orders. Jobless Claims.
Friday: Consumer Sentiment.
Source: Econoday, January 21, 2022
This Week: Companies Reporting Earnings
Monday: International Business Machines (IBM).
Tuesday: Microsoft Corporation (MSFT), General Electric Company (GE), Verizon Communications, Inc. (VZ), Johnson & Johnson (JNJ), Lockheed Martin Corporation (LMT), Texas Instruments, Inc. (TXN), American Express Company (AXP), Capital One Financial Corporation (COF), Raytheon Technologies Corporation (RTX).
Wednesday: AT&T, Inc. (T), Intel Corporation (INTC), The Boeing Company (BA), Tesla, Inc. (TSLA), Abbott Laboratories (ABT), ServiceNow, Inc. (NOW), KimberlyClark Corporation (KMB), Norfolk Southern Corporation (NSC).
Thursday: Apple, Inc. (AAPL), Visa, Inc. (V), Mastercard, Inc. (MA), McDonald’s Corporation (MCD), Northrop Grumman Corporation (NOC), Blackstone, Inc. (BX), Southwest Airlines Co. (LUV), The SherwinWilliams Company (SHW), Mondelez International, Inc. (MDLZ).
Friday: Caterpillar, Inc. (CAT), Chevron Corporation (CVX), ColgatePalmolive Company (CL).
Source: Zacks, January 21, 2022
“Brass shines as fair to the ignorant as gold to the goldsmiths.”
– Elizabeth I
Planning on Starting a Business? Here Are Some Tax Tips You Need to Know
Whether you own your own company or want to start making some side income off a hobby, there are some important tax considerations to know:
* This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov7
Simple Salt Swaps
If you want to trim salt from your diet or lower your sodium intake, there are many small swaps you can make. Sure, ditching the chips and pretzels may help, but there is hidden sodium in many other foods. Here are some swaps you can make that are small enough to incorporate them into your daily diet:
Making just these two swaps will help reduce your sodium intake both at home and on the go.
Tip adapted from Harvard Medical School8
A woman sailed into the Bahamas with her boat on the 28th of April. She stayed in the Bahamas for three weeks and then left in April. How is this possible?
Last week’s riddle: How many times can you subtract the number 4 from 40? Answer: Once. After that, you will no longer be working with the number 40.
Burgundy and gold Hawaiian ti plant (Cordyline minalis) nestled in yellow, ginger, and blue palm fronds.
Footnotes and Sources
1. The Wall Street Journal, January 21, 2022
2. The Wall Street Journal, January 21, 2022
3. The Wall Street Journal, January 21, 2022
4. CNBC, January 17, 2022
5. The Wall Street Journal, January 18, 2022
6. CME, January 19, 2022
7. IRS.gov, September 13, 2021
8. Health.Harvard.edu, August 1, 2018
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Mike's By The Numbers & Weekly Market Insights
January 25, 2022|