January 3-7, 2022 Recap
Stocks Snap Two-Week Rally
Equities Retreat from Fresh Record
The S&P 500 registered its worst weekly start to a year since 2016 on concerns the Fed will raise interest rates at a faster pace to combat inflation. After setting a new all-time high on Monday, the benchmark equity index tumbled 1.94% on Wednesday after the Fed’s December policy meeting minutes revealed that a series of rate hikes may begin as early as March. The 10-year Treasury yield rose above 1.80% briefly. The quick jump in yields sparked a rotation out of higher-growth equities into cyclical value-oriented stocks.
For the Week…
The S&P 500 netted a 1.83% weekly loss, the Dow Industrials fell just 0.29% while the tech-heavy Nasdaq Composite sank 4.52%. The Nasdaq is now 6.91% below its 2021 all-time high set on November 19. The small cap-focused Russell 2000 retreated by over 2.9%.
Payrolls Growth Slows
U.S. nonfarm payrolls slowed to 199,000 in December, missing economists’ consensus forecast for 400,000. Upward revisions for the prior two months added a further 141,000. Overall hiring averaged 365,000 per month in the fourth quarter, down from 651,000 per month during the third quarter.
Real Estate Performs Best in Final Week
Seven of the 11 major sectors ended negative, with Real Estate (-4.94%), Technology (-4.67%) and Healthcare (-4.62%) falling the most. As investors shifted away from growth into cyclicals, Energy surged (+10.61%), followed by Financials (+5.44%) and Industrials (+0.65%).
Treasury Yields Surge
Treasury prices tumbled last week, sending yields notably higher across the curve. Shorter-term 5-year Treasury notes surged 24 basis points last week to 1.51%, its biggest gain since September 2019. The yield on benchmark 10-year Treasurys surged nearly 26 basis points to a near two-year high of 1.769%. The U.S. Dollar Index ticked 0.05% higher for the week. U.S. WTI crude oil gained 4.9% to end Friday at $78.90/barrel.