Day Traders Diary

1/7/22

The major averages finished lower to end a rough week for markets, which have come under pressure because of a spike in rates to begin 2022. The Nasdaq led the decline with a 144 point drop or 0.95% to 14,951. The S&P 500 fell 19 points or 0.4% to 4,677. The Dow Jones Industrial Average lost 4 points, or about 0.01%, to close at 36,231. The tech-heavy Nasdaq fell to its worst week since February 2021, down almost 4.5% in the first five trading days of 2022. The S&P 500 is off by 1.8%, while the Dow is down only 0.29% as investors rotated into some value stocks amid the rise in rates.

The 10-year Treasury yield topped 1.79% on Friday, continuing its amazing 2022 run from a 2021 year-end level of just 1.51%. The release of the Federal Reserve's December meeting minutes on Wednesday were the major catalyst for the rate move. The meeting notes showed the central bank is ready to dial back its economic help at a faster rate than some had anticipated, including taking steps to shrink its balance sheet while raising rates.

Tech stocks lost ground further on Friday as yields jumped, continuing a theme of the week as investors rotate out of the sector. With rates rising rapidly, investors are dumping riskier stocks trading on high valuations based on estimates of profit growth far off in the future.

Microchip Technology was one of the biggest decliners in the Nasdaq, down 3.9%. Other semiconductor stocks fell too, with Nvidia and AMD both down about 3%. Netflix fell 2.2%. Twilio lost 3.5%.

On Friday, the Labor Department reported the U.S. economy added far fewer jobs in December than expected. The nonfarm payrolls report showed an increase of 199,000 in December, though economists had expected growth of 422,000, according to Dow Jones.

While the headline number disappointed, there were some things in this jobs report that pointed to an improving economic picture and higher inflation. Average hourly earnings increased by 0.6%, above expectations. And the unemployment rate fell to 3.9%, the lowest level since Feb 2020 and well below the 4.1% expected.

So after some digestion following the jobs report, yields continued their march higher.

Software stocks were among the hardest hit shares this week amid the rotation out of tech, with Salesforce, Adobe down about 9% for the week. Twilio fell 11%. Nearly all megacap tech stocks were set for a losing week, despite turning higher Friday. Netflix has lost 10% for the week, Microsoft has fallen 6% and Alphabet is down about 5%.

However, while tech stocks drove most of the market losses, value names showed strength, particularly among energy and financial stocks. Schlumberger and Hess both climbed about 16% for the week. Wells Fargo rose 13% this week and Regions Financial gained 14%.

Elsewhere, GameStop shares jumped more than 6% Friday following news that the company is venturing into the crypto world with investments in a marketplace for nonfungible tokens and digital currency partnerships to create games and other items.

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