The major indexes put some distance between one another Friday in a volatile finish to a wild week.
Two days after hearing the Federal Reserve's latest decisions on fiscal policy, Fed Governor Christopher Waller told the Forecasters Club of New York that by ending its bond-buying program sooner rather than later, the central bank is "providing flexibility for other adjustments to monetary policy, if needed, as early as spring." He also called March's scheduled Fed gathering a "live meeting," meaning it is one in which a rate-hike could be issued.
Also stoking volatility was "quadruple-witching expiration," which is when index futures, index options, stock options and individual-stock futures all expire at once. This happens four times a year – on the third Friday in March, June, September and December – and sometimes leads to heavy volume and erratic moves in parts or all of the market.
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"For some time, markets have ignored increasing signals that should have been causes for concern: valuations high in both stock and bond markets, profit margins under pressure, poor market breadth especially for the Nasdaq Composite and a Fed taking a hugely hawkish pivot," says Gene Goldman, chief investment officer of Cetera Investment Management. "The markets need a healthy pullback/correction and are giving back the gains from Wednesday's post-FOMC reaction."
The Dow Jones Industrial Average was the biggest loser on a day that saw several swings, shedding 532 points, or 1.5%, to 35,365, on sharp losses for Goldman Sachs (GS, -3.9%) and Home Depot (HD, -2.9%).
The S&P 500 Index's 1.0% decline to 4,620 wasn't as deep, while the Nasdaq Composite managed to escape with a marginal loss to 15,169.
Other news in the stock market today:
- The small-cap Russell 2000 jumped 1.0% to 2,173.
- U.S. crude oil futures also secured a weekly loss, dropping 2.1% Friday to $70.86 per barrel, which was good for a five-day loss of 1.1%.
- Gold futures, on the other hand, were up 1.1% on the week. Contracts for February climbed 0.4% on Friday to $1,804.90 per ounce.
- FedEx (FDX, +5.0%) shares were one of the day’s few bright spots, jumping on the back of healthy fiscal Q2 earnings report. The company announced revenues of $23.5 billion and adjusted earnings of $4.83 per share, both of which easily topped Wall Street expectations. Also of particular interest were operating margins, which came to 7.1% to beat out estimates for 6.7%. (Remember: FDX shares were clobbered last quarter after warning on margins.) FedEx also raised guidance for full-year earnings and announced a $5 billion share repurchase program.
- Rivian (RIVN, -10.3%) shares are now trading at their lowest point since the electric vehicle maker’s initial public offering in early November, following the company’s first earnings report as a publicly traded company. Rivian announced a mere $1 million in revenues for its most recent quarter. While that still was above the consensus view, earnings missed by a mile, with a $12.21-per-share loss coming in far deeper than the $1.33 in expected red ink. Rivian also said that 2021 production is likely to miss its target for 1,200 vehicles.
- Bitcoin was off 3.6% to $46,177.41. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
Is Defense the Name of the Game?
Stocks are on increasingly shaky ground as we head into 2022.
The major benchmarks all posted notable weekly losses: The Dow shed 1.7%, the S&P 500 lost 1.9% and the Nasdaq gave back 2.9%.
"Investors around the world are showing their concern over central bank policy after this week's Federal Open Market Committee and Bank of England developments," says Dan Wantrobski, technical strategist and associate director of research at Janney Montgomery Scott. "Technical studies indicate that the U.S. markets are still vulnerable to volatility, even after the recent correction that occurred in November."
The name of the game for some, then, might be defense. We've recently highlighted our picks in Wall Street's traditional equity safety zones – utilities, real estate investment trusts (REITs) and consumer staples stocks – but don't forget to look to the bond market for cover.
The market's best bond funds can help cushion the blow of broad-market pullbacks. Yes, the fixed-income market looks primed to face many of the same challenges as its equity counterpart in 2022, but these seven bond funds – spanning a variety of different categories – look better positioned than most to help investors protect their portfolio in the year ahead.
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