Any bit of calm investors enjoyed over the long holiday weekend was sapped quickly Tuesday morning as the markets kicked off the short week with a faceplant.
Vexing the technology sector (-2.5%) specifically and the major indexes broadly was yet more upward momentum in interest rates, with the 10-year Treasury reaching 1.86% – a level last seen in January 2020.
"The chances of the Fed raising rates more than the market expects is now the likely outcome, which is contributing to market volatility," says Jon Maier, chief investment officer at Global X. "The long end of the interest rate curve has been moving up rather quickly, with the 10-year Treasury noticing a 2-year high this morning."
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Also of note was Goldman Sachs (GS, -7.0%), which reported a wide fourth-quarter earnings miss thanks to worse-than-expected trading profits and higher employee salaries. Big banks including JPMorgan Chase (JPM, -4.2%), Morgan Stanley (MS, -4.9%) and Bank of America (BAC, -3.4%) fell in sympathy.
But Julius de Kempenaer, senior technical analyst at StockCharts.com, warns not to throw the baby out with the bathwater:
"The charts of the aforementioned banks are turning more negative, but it does not mean the entire sector is negative," he says. "Banks are only one group inside the financial sector, which in general is in pretty good shape on the back of rising interest rates."
Microsoft (MSFT, -2.4%) also pulled on the major indexes; its $68.7 billion buyout of Activision Blizzard (ATVI, +25.9%) sent the gamemaker soaring, but investors weren't as keen on MSFT shares.
The Nasdaq Composite fell the hardest, off 2.6% to 14,506, but the Dow Jones Industrial Average (-1.5% to 35,368) and S&P 500 (-1.8% to 4,577) weren't terribly far behind.
Other news in the stock market today:
- The small-cap Russell 2000 plunged 3.1% to 2,096.
- U.S. crude oil futures spiked 1.9% to end at $85.43 per barrel – their highest settlement since 2014. " The combination of geopolitical stress (Ukraine, UAE) and resilient demand despite omicron’s emergence (according to OPEC's latest report) drove crude action today," says Michael Reinking, senior market strategist for the New York Stock Exchange.
- Gold futures slipped 0.2% to finish at $1,812.40 an ounce, their third straight loss.
- Bitcoin fell along with other risk assets, dropping 3.2% to $41,798.34. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
- Charles Schwab (SCHW) followed the lead of its fellow financial firms, sinking 3.5% in the wake of its earnings report. In the fourth quarter, SCHW took in earnings of 86 cents per share and revenue of $4.71 billion – falling short of analysts' consensus estimates for earnings of 88 cents per share and revenue of $4.79 billion. Still, CFRA Research analyst Michael Elliott maintained a Buy rating on SCHW. "We believe SCHW will benefit significantly from rising rates, as net interest revenue accounts for over 60% of revenues," Elliott wrote in a note. "Further, the continued integration of recent acquisitions (TD Ameritrade), strong client growth, and SCHW's ability to utilize economies of scale provide further catalysts to growth."
- Shares of The Gap (GPS) slid 6.7% after Morgan Stanley analyst Kimberly Greenberger downgraded the retail stock to Underweight from Equalweight (the equivalents of Sell and Hold, respectively). The downgrade came as part of a broader note on specialty retail, department stores and footwear, which Greenberger says are facing tough year-over-year comparisons in 2022. "Against above-trend apparel consumption, signs of inventory re-stocking, the return of some promotional (price discounting) activity and ongoing cost inflation across Softline P&Ls, [there is] risk of year-over-year revenue, margin, profit and earnings-per-share erosion," she says.
Don't Ghost Growth
"Growth" is a four-letter word these days, at least when it comes to talking about investment opportunities in the new year.
Value stocks are largely the favored call for 2022 amid economic expansion and expected rate-hikes out of the Federal Reserve. Emblematic of value bulls' expectations are Jason Pride and Michael Reynolds, executives at private investment firm Glenmeade:
"Value stocks that trade at discounted valuations have until now been unable to sustain a significant run of outperformance relative to growth stocks," they say. "However, a sustained rise in short term and longer-term interest rates could be the key to resolving this market conundrum."
That doesn't, however, make growth sapor non grata – it just means investors will have to temper expectations for the investing style in 2022, and hope for more substantial profits farther down the road in some cases.
Growth exchange-traded funds (ETFs) can come in handy on this front. General growth-flavor funds can help you diversify across hundreds of stocks, minimizing single-stock risk and helping you remain invested until better days arrive. Meanwhile, some targeted funds might be able to ignore broader growth malaise and log strong returns thanks to their underlying trends.
This short list of nine such growth ETFs is a great place to start for buy-and-hold and tactical investors alike.
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