Market Pulse

Market Pulse

January 18, 2022

In focus

The technology sector has been in focus to start the year given that higher rates have been weighing on the sector’s performance. In addition to having many high-profile companies in the sector, it is also the largest sector in the S&P 500 index. As a result, large moves in technology tend to influence the overall direction of the S&P 500. Year to date, the technology sector is down 4.7%, with only health care and real estate performing worse. On the flip side, the energy sector is up over 16% year to date and financials are up almost 5%. The only other sectors near positive territory are the industrials sectors, which has returned 0.04% this year, and consumer staples, which has lost 0.01% year to date.

The diverging fortunes between these sectors have influenced the performance differential between large cap, mid cap, and small cap indices. Large caps have been weighed down by their 28% weight to technology. Meanwhile, small caps, which tend to have a higher weighting to financials and energy than both large and mid caps, have benefitted from the performance of those sectors. As a result, small caps have been the outperformer, having declined less than 1% year to date. Mid caps, which are down 2% this year, are underperforming small caps but outperforming large caps.

Despite the tough start to the year, we remain positive yet realistic and expect moderating but still positive returns for U.S. stocks. Additionally, we expect to see more volatility and more normal pullbacks as we continue to move further into the bull market.

A look back

  • Global equities gained 0.2% on the week, driven by positive performance in international developed and emerging markets while U.S. stocks slumped for the second consecutive week.
  • Fed Chair Powell and Fed Governor Brainard, who is President Biden’s nominee for Vice Chair, testified before the Senate Banking Committee as part of the nomination process.
  • The Consumer Price Index for December came in at 7.0% on a year-over-year basis, in line with consensus estimates. It was the highest reading since 1982.

A look ahead

  • Earnings season kicked off this past week with several large banks reporting. Investor focus on earnings results, profit margins, and guidance from management teams will likely impact investor sentiment.
  • Markets will continue to digest President Biden’s three recent Fed nominees and the potential path of future monetary policy.
  • Economic releases: Empire Manufacturing, MBA Mortgage Applications, Building Permits, Housing Starts, Existing Home Sales, and the Leading Index.Fourth quarter earnings season prepares to kick off with yet another 20% growth expected, validating recent gains.

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