US market close: Wall Street preps for Fed-free economy
By Joseph Toppe
22:05, 6 January 2022
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.”
“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.
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