Stock Market Today
American and European futures are up today as investors await key inflation reports to be published this week. Investors should note that consumer prices were on a rampage in 2021, rising by 6.80%, the steepest surge in nearly four decades. This is why the Federal Reserve has pulled the breaks on its ultra-easy monetary policy by not just speeding up its tapering timeline but also reducing its exposure to treasuries and likely raising interest rates sooner. Investors should keep in mind, however, that any miscalculated move by the Fed, such as being more aggressive than necessary, could potentially spark a taper tantrum and stifle economic growth in the coming months. Having said that, the Fed has done a good job of preparing the markets over the last few months, so a tantrum is highly unlikely.
In Friday’s session, the Dow Jones Industrial Average fell 0.01%, while the S&P 500 index slumped 0.41%. The Nasdaq, the tech-savvy index, dropped 0.96% while the Russell 2000 dipped 1.20%.
Last week, investors were reassessing their strategies as a result of surging treasury yields, which were making stocks of high-growth companies less appealing. The yield for ten-year Treasury bonds surpassed 1.80% on Friday after ending 2021 at 1.51%. Over the next few months, stock traders are likely to face higher volatility as company valuations adjust to changing circumstances like the withdrawal of pandemic era stimuli and the highly anticipated interest rate hikes. Moreover, the quickly spreading Omicron cases and the threat of newer variants emerging are also likely to fuel volatility in coming months.
Inflation numbers to be released this week could potentially cause waves in stock markets. The data is important as investors are closely watching for signs of whether inflation is still at a point where it can be controlled with monetary policy tools or whether the Fed has lagged behind in tackling higher consumer prices. Stock traders should dissect the remarks of Fed officials to decipher how the central bank is likely to alter its monetary policy in the short term and for clues on how it sees the economy performing in 2022. Investors should remember that Jerome Powell, Chairman of the Federal Reserve, is set to testify at his nomination hearing in front of a Senate panel on Tuesday, while Lael Brainard, a Fed Governor, is scheduled to testify on his nomination for vice chair on Thursday.
Bitcoin continued its downward trend over the weekend as well, approaching $40,000 for the first time in nearly three months. The main culprit behind the slump in crypto prices is the Fed’s decision to withdraw massive liquidity, which has been pumped into markets since the onset of the coronavirus pandemic. Higher capital in markets allowed investors to take positions in risky assets and pushed stock market indices to unprecedented highs. However, blazing inflation, which the Fed at first believed to be transitory, has persuaded the Fed to wind down its quantitative easing measures at a much faster pace than investors had initially expected. This decision has been deemed unfavourable for risky and speculative assets such as cryptocurrencies.
On the other hand, investors should also keep in mind that, looking at Bitcoin’s historical price action, the $40,000 level has proven to be a good support level for Bitcoin, and hence, investors should consider Bitcoin prices near the $41,000 mark as an opportunity to purchase the digital coin at bargain prices. This is because the outlook for cryptocurrencies remains positive as we move to a more digitised future.
Oil prices have been under pressure since employment numbers in the United States came in below expectations, raising concerns related to the outlook for economic recovery due to the spread of the Omicron variant. This update dampened the future outlook for crude oil demand as countries are quickly moving to raise restrictions.
However, oil supply also took a hit last week because of protests in the western regions of Kazakhstan. However, according to Kazakhstan’s President, the situation is now under control after Russia sent soldiers to put a stop to the uprising. Similarly, oil output from Libya also fell from 1.3 million barrels per day to 729,000 barrels per day because of maintenance of pipelines.
The precious metal’s price rose last week, aided by mediocre job growth in December 2021. Gold prices rose despite a hawkish Fed that is likely to stick to a faster taper and begin implementing interest rate hikes as early as March of this year. According to the data released, nonfarm employment surged by only 199,000, compared to the 400,000-increase predicted.
Just like gold, the U.S. dollar also depreciated in value because of the non-farm employment numbers missing their target. The lower job growth in December raised investor concerns that the spread of cases from the new strain would likely stifle American economic growth and forces the Federal Reserve to rethink its strategy and extend its easy monetary policy. However, this is unlikely to be the case moving forward, as inflation is still very much on the rise and the Fed is sticking to its plan to end its tapering process sooner rather than later.
Asian Pacific Markets
Stock markets in China have not performed well since the beginning of 2022, prompting the Securities Regulatory Commission to announce that it will implement a wide range of measures to reduce volatility and prevent high fluctuations in its financial markets. In addition, the country is witnessing the first Omicron cases within its borders.
As of 11.35 a.m. EST, the Nikkei dropped 0.03% and the Shanghai index hopped 0.22%. The Hang Seng index, in Hong Kong, surged 0.77%. The ASX 200 index fell 0.08% and the Seoul Kospi dipped 1.07%.