Stock Market Today
Futures in the United States and Europe are trading lower following the bloodshed seen in stock markets in recent days as a result of rising treasury yields, which spooked investors into shifting their exposure from risky and growth stocks to cyclical and value stocks. However, the Nasdaq, was able to break a four-day losing skid. On the other hand, investors should understand that the American economy is in good shape to deal with any future coronavirus concerns, and tightening of monetary policy is likely to be at a pace that markets can easily navigate through, making the current stock market dip a good opportunity for investors to buy stocks in good companies at bargain prices.
In yesterday’s session, the Dow Jones Industrial Average fell 0.45%, and the S&P 500 index slumped 0.14%. The Nasdaq, the tech-savvy index, climbed 0.05% while the Russell 2000 dipped 0.40%.
The recent slump in stock markets should not come as a surprise to stock traders as a correction was highly anticipated with the Fed becoming more aggressive and interest rate hikes just over the horizon. The price action we’ve seen in the last few days could just be the beginning of this correction phase. What investors are doing is incorporating higher yields and a strong economic recovery into their strategies while weighing the risks of rising coronavirus cases. However, the most important factor to consider moving forward is the strength of corporate earnings in 2022. If companies were able to achieve solid earnings last year, it would provide a good foundation for companies this year as well. Investors should note that the earnings season is likely to be in full swing by the end of this week, with banks expected to report their financial results beginning Friday.
Investors should keep in mind that stock markets are likely to be volatile over the next few days, mainly because of the inflation data scheduled to be released tomorrow. Inflation is a major factor considered by the Federal Reserve in deciding its monetary policy. In 2021, consumer prices surged rapidly owing to supply chain bottlenecks and a steep recovery in demand. To keep consumer prices from rising any further, hawks had to seize control of the situation and double the rate of tapering. The inflation reading to be released on Wednesday is also expected to come in higher, supporting the Fed’s current strategy.
Fed Chair Jerome Powell stated in his Senate confirmation that the American economy is growing rapidly and the central bank will do everything in its power to control inflation before it becomes deep-rooted. Moreover, he also warned that growth of the American economy post-pandemic will likely be different from what we are used to.
On the coronavirus front, coronavirus cases in New York have reportedly peaked, almost one month after the Omicron strain was spotted there. Furthermore, Pfizer is currently working on developing a vaccine that would protect us from the Omicron variant as well. In addition to this, as per new findings, a higher number of immune cells that protect against common colds has also made people more resistant to getting infected with COVID-19.
Yesterday, Bitcoin, the gold standard of digital coins, experienced a very negative price action. It briefly fell below the critical $40,000 mark and traded as low as $39,771.91. Markets quickly recovered, and the infamous digital coin is now worth around $41,000.The main cause of the recent sell-off has been an aggressive Fed, which has moved its timeline for raising interest rates earlier than expected, making risky assets like cryptocurrencies less appealing. Furthermore, we can now confidently assert that there is a positive correlation between cryptocurrency prices and broader equity markets. As a result, the recent drop in stock markets has also had an impact on sentiment in crypto markets.
Having said that, we are likely to see volatility in crypto markets over the next few days due to the highly anticipated inflation data. This is because, in November, when inflation reached its highest level in 30 years, Bitcoin reached an all-time high of nearly $69,000. Investors began to accumulate more digital coins in order to protect themselves from rising consumer prices. If inflation resumes its rapid rise, bitcoin could potentially surge once more.
Crude oil prices are under pressure as investors are worried about the future outlook of demand because of the global rise of cases of the new strain. Moreover, crude oil output recovering in Libya has also assisted in dragging oil prices down. Similarly, the uprising in Kazakhstan also seems under control, meaning we can expect to see oil supply resume from that region as well. However, it is important to note that pharmaceutical companies are actively working on tweaking their vaccinations to deal with the Omicron variant, and hence the situation is likely to be under control in coming months. Hence, demand for crude oil is expected to continue its rising trend.
Despite yields on ten-year Treasury bonds surpassing 1.80%, gold prices have been moving up as it is considered a hedge against inflation and investors are expecting inflation to continue rising in coming months as well. Furthermore, the turmoil in stock markets is also helping the precious metal move higher until stock traders are able to make sense of the situation. However, interest rates are still expected to be raised as soon as March and are likely to drag gold prices down moving forward as higher interest rates increase the opportunity cost of holding the precious metal and make it less appealing to investors.