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US market close: Wall Street preps for Fed-free economy

By Joseph Toppe

22:05, 6 January 2022

Bulls and bears
Bulls and bears - Photo: Shutterstock

The big US benchmarks fell hard on Thursday as investors brace for a new year without a Fed stimulated economy.

The Dow Jones Industrial Average dropped 171.94 points, or 0.5%, to 36,218.45, the S&P 500 slipped 0.2%, closing at 4,697.84, while the Nasdaq Composite backpedaled 0.05% to 15,083.88.

Throughout trading on Wednesday, the Dow lost 255 points, or 0.6%, the S&P fell 1.2%, while Nasdaq dropped 2.4%.

The market today

In an interview with Capital.com, Kevin Philip, managing director at investment advisor firm Bel Air in Los Angeles, said “While the stock markets traded lower on Thursday, it was mostly driven by high valuation tech, which is evidence of a normalising environment.”

“As tech has been the largest winner of the Covid-era, it seems reasonable for there to be a rotation toward other sectors that have lagged as the Fed’s minutes allude to a healthy economy that may warrant a faster normalisation of policy.”

The US Federal Reserve met last month to determine whether the central bank’s low interest rate policies were still needed.

The minutes show a hyper aggressive approach to combat the record US inflation in 2022 including rate increases, re-hikes, and balance sheet reductions.

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Bull and bears beware: Investor outlook 2022

Philip said, “Bulls and bears alike get wary of a Fed-dependent market.”

“It reduces real market mechanics while lifting undeserving stocks,” he continued. “With this latest report, we see a confident but retreating Fed, leaving the market to more healthily stand on its own, which means more volatility and more accountability; and that is why investing is both difficult and rewarding.”

While the central bank will continue buying Treasury and agency mortgage-backed securities at a slower pace, the strategy will end around March.

In 2022, Philip said, “Investors should regularly rebalance and replenish dry powder to invest in quality stocks for the long-term.”

USD/JPY

157.16 Price
+0.610% 1D Chg, %
Long position overnight fee 0.0106%
Short position overnight fee -0.0188%
Overnight fee time 21:00 (UTC)
Spread 0.010

AUD/USD

0.67 Price
-0.090% 1D Chg, %
Long position overnight fee -0.0065%
Short position overnight fee -0.0017%
Overnight fee time 21:00 (UTC)
Spread 0.00006

EUR/USD

1.09 Price
-0.230% 1D Chg, %
Long position overnight fee -0.0087%
Short position overnight fee 0.0005%
Overnight fee time 21:00 (UTC)
Spread 0.00006

GBP/USD

1.30 Price
-0.300% 1D Chg, %
Long position overnight fee -0.0046%
Short position overnight fee -0.0036%
Overnight fee time 21:00 (UTC)
Spread 0.00013

“The end of 2021 saw opportunities to harvest losses out of emerging markets, while reconsidering whether we should stay the course or add to US sectors of value which began to lag with the rise of the Omicron variant,” he continued. “Additionally, investors who need cash from their portfolios could offset any losses with gains to ensure they have 24-plus months of cash and cash flow needs to rely on.”

Winners and losers: Travel shares tank

With the Fed minutes on the mind of traders, banking shares wobbled during trading as Bank of America went up 2.01%, Wells Fargo went 2.54% higher, while JPMorgan rose 1.06% and Goldman Sachs dipped 0.43% in the red.

In travel stock, shares of American Airlines are 0.59% lower, Delta Airlines dropped 0.42%, as Southwest Airlines sank 0.23% and United Airlines slipped 0.022% in negative territory.

In other travel stock, shares of Carnival are down 0.47%, while Norwegian Cruise Line is 1.50% off and Royal Caribbean is 3.34% lower.

Oil: Winning streak hits four

Oil futures went up again on Thursday as West Texas Intermediate crude for February delivery spiked $1.61, or 2.1%, to close at $79.46 a barrel on the New York Mercantile Exchange, while March Brent crude, the global benchmark, went up $1.19, or 1.5%, to $81.99 a barrel on ICE Futures Europe.

In energy stock, shares of Hess are up 5.47%, Chevron is 0.82% in the green, while Exxon Mobil is 2.37% and ConocoPhillips is up by 3.74%

Gold: Precious metal falls hardest in six weeks

Gold futures closed lower with February gold losing $35.90, or 2%, lower to finish at $1,789.20 an ounce, while March silver slipped 98 cents, or 4.2%, to close at $22.19 an ounce.

Forex: US dollar holds position

On Thursday, one US dollar equals $1.27 of the Canadian dollar and $0.89 of the euro, and $0.74 of the Pound sterling.

The yield on the 10-year Treasury note climbed to 1.733%, up from 1.703% Wednesday.

Read more: Great Resignation signals power shift to labour force

Markets in this article

AAL
American Airlines Group Inc (Extended Hours)
10.84 USD
-0.06 -0.560%
AAL
American Airlines Group Inc (Extended Hours)
10.84 USD
-0.06 -0.560%
BAC
Bank of America Corp (Extended Hours)
43.42 USD
-0.64 -1.460%
BAC
Bank of America Corp (Extended Hours)
43.42 USD
-0.64 -1.460%
CCL
Carnival Corp (Extended Hours)
18.58 USD
0.06 +0.330%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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