Stock market today: the Fed shows its teeth, technology opens the door
Broad markets absorbed a punch on Wednesday afternoon after minutes from the last Federal Reserve meeting hinted that the central bank is poised to become more aggressive on monetary policy tightening.
Investors have already had weeks to digest both the accelerated pace of reduction in Fed asset purchases and the expectations of multiple rate hikes in 2022, made explicit in the statement from the Federal Committee meeting. open market in December. But today, the release of the meeting minutes showed that Fed members were starting to look for another tool in their toolbelt.
“Almost all of the participants agreed that it would likely be appropriate to initiate the balance sheet runoff at some point after the first increase in the federal funds rate target range,” the minutes read, referring to the sale. eventual part of its $ 8.3 trillion in bond holdings.
Bob Miller, head of fundamental fixed income Americas at BlackRock, says the Fed has a tough job ahead of it. “The combination of aggressive fiscal and monetary policy responses to the COVID crisis has resulted in an epic increase in both money supply and household net worth, as well as record real interest rates,” he said. -he declares.
Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance, says his firm believes the Fed is likely to raise interest rates faster and potentially shrink its balance sheet sooner than expected, putting emphasis on fighting inflation protection against a decline in economic activity. “What is more difficult to predict is the level of market liquidation that they are willing to tolerate before they change course,” he says.
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“We believe that the Fed will experience some short-term volatility in the stock market in order to remove all the monetary accommodations it has injected into the markets,” Zaccarelli adds. “However, they are still likely to heed recession warnings from the stock market (eg, a drop of almost 20%) and would halt their activities in that case.”
Real estate (-3.3%) was the worst sector of the market on Wednesday, but technology (-3.1%), with mega-caps such as Selling power (CRM, -8.3%) and Microsoft (MSFT, -3.8%), had a much greater impact on the main indices.
the Nasdaq composite plunged 3.3% to 15,100, while the S&P 500 lost 1.9% to 4,700. Dow Jones Industrial Average fared better on Wednesday, falling relatively modest 1.1% to 36,407.
Other stock market news today:
- U.S. Crude Oil Futures was up 1.1% to $ 77.85 a barrel after the Energy Information Administration reported a sixth consecutive weekly decline in national crude inventories.
- Gold Futures closed higher for a second straight day, adding 0.6% to end at $ 1,825.10 an ounce.
- Bitcoin was not excused from the sale, dipping 4.9% to $ 44,012.43 (Bitcoin trades around the clock; prices shown here are at 4 p.m.)
- Rivien Automobile (RIVN) saw a notable decline, with shares of the electric vehicle (EV) maker slipping 11.2%. The sale was triggered by the new Stellantis (STLA, + 0.3%) – a company formed during the merger of Fiat Chrysler and the PSA group in early 2021 – called on Amazon.com (AMZN, -1 , 9%) to be the supplier of its on-board dashboard software. and cloud services. The collaboration will also allow Amazon to be the first commercial customer of STLA’s battery-electric vehicle, Ram ProMaster, which is slated to debut next year. RIVN announced a deal with Amazon in December, which would make Amazon Web Services his preferred cloud provider. Since hitting a record high of around $ 150 in mid-November, Rivian stock has lost around 40%.
- Enphase Energy (ENPH) plunged 11.8% after BofA Securities analyst Julien Dumoulin-Smith lowered solar power’s share to Neutral (Hold) of Buy and lowered its price target to $ 187 versus $ 297. This was less than 5% higher based on ENPH’s Tuesday close at $ 178.28; shares closed at $ 157.20 on Wednesday. Shares peaked at $ 272 in late November, but have since fallen more than 40%.
The 2022 outlook for small caps
Small-cap stocks haven’t escaped the pain either, with the Russell 2000 down 3.3% to 2,194 – a rough start for a space the pros are nonetheless bullish on in early 2022.
Most of the outlook for the new year tends to revolve around large and mid-cap stocks, whether it’s a look at the best stock opportunities of the year or more focused insights focused on different sectors. and market industries.
But small caps should not be ignored; investors who appreciate a good deal should be especially focused on the long-term value potential of small businesses.
“While large and mid caps are trading at a 35-40% premium over history, small caps are now trading in line with history,” writes Jill Carey Hall, equity and quantitative strategist at BofA. Securities. “Current valuations imply single-digit annualized returns for small caps over the next 10 years. “
That brings us to Kiplinger’s annual snapshot of the best small-cap stocks of the new year. We’ve scoured all of the Russell 2000 looking for some of the top picks among small businesses, and these 12 shine against their peers thanks to factors like sterling fundamentals, attractive pricing and, in a few cases, expectations. analysts for a triple digit increase in the next 12 months or so.
Kyle Woodley had been a CRM for a long time at the time of this writing.