The stock market closed lower this week, as investors faded a half-hearted rebound bid during the week. The S&P 500 and Nasdaq Composite both declined 0.3%, while the Dow Jones Industrial Average (-0.9%) and Russell 2000 (-0.8%) declined nearly 1.0%.
Nine of the 11 S&P 500 sectors finished in the red, including consumer discretionary (-1.5%), real estate (-2.0%), and utilities (-1.4%) with noticeable declines, while the energy (+5.2%) and communication services (+0.5%) sectors closed higher. Energy stocks followed oil prices ($83.87, +4.93, +6.3%) much higher.
The 10-yr yield wasn’t the problem this week since it was unchanged at 1.77%. It was more that the market remained concerned about the Fed’s tightening plans, the still-elevated valuations of growth stocks, weakening technical factors, and the disappointing start to the Q4 earnings-reporting season.
Fed Chair Powell, Fed Vice Chair nominee Lael Brainard, and a host of other Fed officials made it clear this week that they support tightening policy in part to keep inflation in check. Mr. Powell said in his confirmation hearing that he thinks the Fed will end asset purchases in March, hike rates over the course of the year, and allow the balance sheet to run off later in the year.
The 2-yr yield, which tracks expectations for the fed funds, rate increased nine basis points to 0.96%. The probability for the first rate hike to be in March increased to 86.1% from 75.9% last Friday, according to the CME FedWatch Tool.
The latest inflation data bolstered these expectations, even though the headline CPI and PPI prints for December decelerated on a month-over-month basis. That was largely due to the sharp decline in oil prices, which have since recovered. The core readings, which exclude food and energy, were hotter than expected.
As for earnings, JPMorgan Chase (JPM), Citigroup (C), and BlackRock (BLK) fell sharply following their earnings reports on Friday, but Wells Fargo (WFC) pleased shareholders with its report.
Other considerations included the S&P 500 closing below its 50-day moving average (4681), inviting the potential for follow-through selling; downside guidance from Sherwin-Williams (SHW), raising concerns about margin pressures; and the breakdown in negotiations surrounding the Build Back Better Act.
Week in review provided by: Briefing Investor