Markets “In a Nutshell” for January 24, 2022
Investment Week at a Glance
Stocks finished lower for the week. The Dow Jones Industrial Average fell 4.60%, the S&P 500 was down 5.70%, and the NASDAQ fell 7.60%. Foreign stocks (MSCI EAFE) were up, rising 0.70%. Bond prices were higher for the week, with the 10-year U.S. Treasury ending the week at 1.76%. (Data source: Wall Street Journal)
Stocks moved lower last week as rates continued to push higher with the 10-year Treasury yield hitting 1.9% before coming down at the end of the week. Although rates are still at historical lows, we are now at the highs of the last two years for rates. Markets moved lower not because the 10-year was at 1.9% but by how quickly it had moved from around 1.4% at the end of 2021 to 1.9% less than a month later. Although rates are expected to continue to move higher, expectations are that they will not continue to move this quickly and as they cool off stocks will begin to show less volatility than we saw this past week.
Equities Moving Forward
As rates have been rising, many stocks have moved lower, but companies with high price-to-earnings (P/E) multiples have been hit the hardest. Many of these companies, which are in the technology sector, are in the NASDAQ index. This is the reason the NASDAQ is now down more than double the Dow Jones for the year. These companies had a good run during the pandemic, but as rates rise companies must shrink their growth estimates. Although the NASDAQ has fallen 12% for the year, it could be much worse as over 1/3 of NASDAQ stocks are now 50% lower than their 52-week high. Large mega-cap companies, such as Apple, Microsoft, Google, Tesla, etc. have managed to keep the NASDAQ afloat recently. If these stocks begin to slip, expect the indexes as a whole to move lower as they make up much of the S&P 500 and NASDAQ.
What percent of the S&P 500 is made up of Apple, Microsoft, & Amazon? (Scroll Down for Answer)
Have a Great Week!
4) 16%, Those three companies make up roughly 1/6th of the index. Only 13 of the 500 companies in the S&P 500 make up at least 1% of the index.