Market Insights

Stocks tumbled again last week as investors brace for a potentially major increase in bond yields.

The S&P 500 slid 0.3 percent between Friday, January 7, and Friday, January 14. It was the index’s second straight weekly decline after failing to hold new highs early in the New Year.

But the real thing to watch could be the 10-year Treasury yield (see below), which is flirting with its highest level since the coronavirus pandemic began. The increase came despite weak economic news like retail sales — a potential sign that investors are looking past short-term headlines and believing the Federal Reserve’s resolve to battle inflation.

The new hawkishness has prompted investors to dump high-multiple technology companies and interest-rate sensitive industries like real estate. They’ve shifted toward energy stocks, which are viewed as beneficiaries of inflation and the economy reopening.

Semiconductor stocks like Applied Materials (AMAT) bucked weakness in the Nasdaq given the strong demand for microchips. Chinese technology names also rebounded from long-term lows.

Casino stocks with operations in Macau jumped after the local government prevented new competitors from entering the Chinese gambling hub. Those included Las Vegas Sands (LVS), Wynn Resorts (WYNN) and Melco Resorts & Entertainment (MLCO).

Charting the Market

The S&P 500 has made a series of lower highs and higher lows since 2022 began. That’s produced a triangle on the chart, which some traders may view as a potential reversal pattern.

Technical analysts may also notice that prices have struggled to remain above the 50-day moving average, which mostly offered support over the last year.

The Nasdaq-100, on the other hand, is struggling to hold its 100-day moving average. It’s also gone more than seven weeks without a new 52-week high.

The U.S. dollar index also dropped last week as traders apparently “sold the news” of a hawkish Fed. The combination of higher bond yields and a weaker dollar could potentially signal a shift toward global equities following years of underperformance.

The Week Ahead

The busy phase of earnings season begins this week, with at least 36 members of the S&P 500 announcing results. Several housing reports are also due, although higher bond yields could overshadow strong backward-looking numbers.

Goldman Sachs (GS) releases earnings in the premarket, followed by NAHB’s homebuilder sentiment index after the opening bell.

Wednesday morning features Bank of America (BAC), Morgan Stanley (MS), UnitedHealth (UNH) and Procter & Gamble (PG). Housing starts and building permits are also due. United Airlines (UAL) reports in the post-market.

American Airlines (AAL) follows on Thursday morning, along with initial jobless claims. Existing home sales and crude oil investors will be released during the session. Netflix (NFLX) and Intuitive Surgical (ISRG) are the big names after the closing bell.

Next week is even busier, with a Fed meeting and at least 115 members of the S&P 500 reporting, according to TradeStation data.