(Bloomberg) — Volatility gripped financial markets, with investors bracing for a rebalancing of the S&P 500 and the expiration of equity derivatives.
Stock moves were magnified by the intense activity in the options market, potentially making Friday one of the busiest trading days of the year. The S&P 500 extended its weekly losses amid volume that was 35% above the average of the past month. With the holidays fast approaching, it could be the last day of 2021 with enough liquidity for investors to trade in and out of large positions.
That’s not all. Traders are also reassessing their bets for the coming months after central banks signaled they’re prioritizing the fight against inflation by tightening monetary policy, while also keeping a wary eye on the omicron coronavirus variant. Such backdrop has investors questioning whether stocks are due for a rougher patch after their huge rally from pandemic lows.
The hawkish tilt by policy makers also put the highly valued cohort of big technology companies on the spotlight. The group of marquee names like Apple Inc., Tesla Inc. and Amazon.com Inc. has faced intense gyrations, surging in the immediate aftermath of the Federal Reserve decision on Wednesday, tumbling on the next day and swinging between gains and losses on Friday.
Comments:
- “This week’s stock market volatility is being driven by a perfect storm of factors, including negative omicron headlines, the emergence of a more hawkish Federal Reserve and profit taking in megacap tech stocks,” said Robert Schein, chief investment officer, Blanke Schein Wealth Management.
- “None of us really want to leave the party too soon — we don’t want to miss out — but at the same time, we are realizing that some parts of tech have run very hot,” Anna Han, equity strategist at Wells Fargo Securities, told Bloomberg Television.
- Tech sold off “amid concerns that policy tightening from the Fed will reduce the appeal of lower-yielding growth stocks, especially those with overstretched valuations,” said Fawad Razaqzada, an analyst at ThinkMarkets.
- “The cyclical value sectors such as energy, materials and industrials have historically done well leading up to the start of Fed rate hikes. We wouldn’t be surprised to see value stocks make another run as the economy picks up some speed,” said Jeffrey Buchbinder, equity strategist at LPL Financial.
The old stock market adage of “buy the first hike, sell the penultimate rate hike” could go wrong this time as inflation is out of control, according to Bank of America Corp.
“Little cracks” were appearing in megacap tech stocks, the epicenter of a 13-year bull market, before tightening even began, Michael Hartnett, BofA’s chief investment strategist wrote in a note. He remains bearish until investor positioning “shows full-blown capitulation” or a credit event on Wall Street causes central banks to announce a reversal of tightening.
Corporate highlights:
- Elon Musk offloaded a second batch of Tesla Inc. shares in a matter of days and is now three-quarters of the way done selling 10% of his stake in the company.
- FedEx Corp. jumped after raising its outlook and posting earnings that handily beat analysts’ estimates, thanks to record profit at its Express package business.
- Rivian Automotive Inc. fell to the lowest level since they started trading last month after the electric-truck maker’s debut earnings report revealed a slower-than-expected increase in production.
- Darden Restaurants Inc., the operator of Olive Garden restaurants, dropped after its forecast fell short of Wall Street’s expectations and the company said its chief executive officer will retire next year.
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.7% as of 12:45 p.m. New York time
- The Nasdaq 100 fell 0.3%
- The Dow Jones Industrial Average fell 1.2%
- The MSCI World index fell 0.7%
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.5% to $1.1269
- The British pound fell 0.5% to $1.3260
- The Japanese yen was little changed at 113.62 per dollar
Bonds
- The yield on 10-year Treasuries declined two basis points to 1.39%
- Germany’s 10-year yield declined three basis points to -0.38%
- Britain’s 10-year yield was little changed at 0.76%
Commodities
- West Texas Intermediate crude fell 1.9% to $71.04 a barrel
- Gold futures rose 0.4% to $1,805.70 an ounce
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