Stocks opened broadly lower on Friday and collapsed into the close, states Jon Markman, tech sector expert, and editor of Strategic Advantage.
The S&P 500 (SPX) finished at 4,397, down 1.9%. The decline capped 5.7% in losses last week and leaves the benchmark S&P 500 below the 200-day moving average at 4,429. The next important support level is the October 2021 low at 4,300. I am a strong advocate of following trends, yet it is important to remember the biggest stock market rallies happen within the context of bearish trends. Big downdrafts create vacuums that often suck shares sharply higher as bears rush to cover short positions.
Keep this in mind as the Federal Reserve meets on Tuesday and Wednesday, and earnings reports begin to roll for the likes of Apple (AAPL), Tesla (TSLA), and Microsoft (MSFT). No promises, but sentiment is so extreme that it could be time for late-coming short-sellers to have their knuckles rapped. There is overhead resistance for the S&P 500 at 4,500 and 4,550.
The Nasdaq fell 2.7% to 13,768.92, taking its loss this month to 12%. The Dow declined 1.3% to 34,265.37, finishing at session lows alongside the other major indexes. Breadth favored decliners 7-1, and there were 1691 new lows vs new highs 22. Big caps on the new high list included Procter & Gamble (PG), PepsiCo (PEP), Mondelez International (MDLZ), American Electric Power Company (AEP), and Hershey Company (HSY). That's a very defensive vanguard.
The 10-year US Treasury yield fell nine basis points to 1.75%, from the vicinity of a two-year high. West Texas Intermediate crude oil retreated $1.01 to $84.54 per barrel after setting a seven-year high above $89 Wednesday. Netflix (NFLX) shares plummeted 22% after the leading provider of streamed entertainment reported disappointing quarterly subscriber growth and provided forward guidance below estimates despite a new price hike in the US and Canada.
The Conference Board's Leading Economic Index rose 0.8% for December, and the group forecast US economic growth of 3.5% this year despite the expected slowdown to a 2.2% annualized rate in the first quarter.
The US leading indicators gauge "ended 2021 on a rising trajectory, suggesting the economy will continue to expand well into the spring," said Ataman Ozyildirim, senior director of economic research at the Conference Board.
Friday's decline was US stocks' 11th in the new year's first 14 sessions, against the backdrop of inflation at 40-year highs and rapid shift to monetary policy tightening, even as the pandemic continues to slow growth.
The Federal Reserve's rate-setting panel is likely to meet market expectations for a 25-basis-point rate hike in March by signaling that increase January 26 at the end of its two-day meeting. Another key issue for the Fed is the pace at which it will start to draw down its debt holdings, with guidance on that issue also possible next week, according to the note.
