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Thursday, December 29, 2022
Today’s newsletter Jared Brickle, Yahoo Finance market-focused reporter. follow him on twitter @SPY JaredRead this and other market news on the go Yahoo finance app.
Stocks fell Wednesday, with the Nasdaq Composite falling below the Dow Jones Industrial Average again. This trend summarizes the biggest challenges of the investment year.
The Nasdaq is down 35% so far in 2022, while the Dow is down less than 10%. And this Dow’s outperformance against the tech index is by far the biggest gap since the 2000-2002 dot-com bubble peaked and burst.
The explanation is relatively simple. The Fed has aggressively tackled inflation, with tech and growth stocks crashing this year. Meanwhile, energy stocks surged for most of 2022, and cyclical and defensive sectors such as healthcare, industrials, materials and staples saw a surge of investor interest in the fourth quarter.
For many investors, 2022 is just an anomaly, a pit stop in the Fed’s return trajectory to low interest rates, or what many now envision is after a decade of record-low interest rates. You might think it’s standard.
Once the Federal Reserve nips inflation in the bud, the central bank is believed to be able to reopen the low-rate incubators that have launched hundreds of high-growth technology winners over the past decade. .
Markets are pricing in the Fed finally cooling its rate hike plans in 2023, but that doesn’t necessarily mean a return to the previous trading regime. The battle over inflation has become a multi-year affair that could spill into the second half of the decade as concerns once again make headlines.
In that case, a cyclical and defensive name could be a place to camp for several years.
And if market trends in both 2022 and the final quarter of the year are to be ignored, some investors seem to be eyeing the idea.
Year-to-date performance of the top 25 S&P 500 components by market capitalization compared to their quarterly performance.
Dark red has dominated year-to-date returns, especially among big names such as Apple (AAPL), Microsoft (MSFT) and Alphabet (GOOGL).
Amazon (AMZN) has lost just over half of its market cap this year, while Tesla (TSLA) and Meta Platforms (META) have lost two-thirds of their market cap and dropped out of the index’s top 10 after crossing. I was. Last year he hit the $1 trillion mark.
With the exception of Microsoft, all of these former names have also posted loss-making quarterly returns, highlighting the difficulty of relying on past winners in this cycle.
Outperforming companies are also beneficial, with Warren Buffett’s Berkshire Hathaway (BRK-A, BRK-B) gaining 13% in Q4. Berkshire has held onto profitable financial, industrial and energy stocks despite its hefty stake in Apple, which hasn’t slowed its gains this year.
Fourth quarter winners included many companies in healthcare, finance, energy and consumer staples. Top performers included JP Morgan Chase (JPM), Merck (MRK), Exxon Mobil (XOM) and Procter & Gamble (PG), all up more than 20%.
Fast forward a year and your leadership board will undoubtedly look very different. But we probably won’t return to the status quo of the 2010s.
The challenge for many investors in today’s market is the lack of sustained outperformance of value and cyclical stocks over growth stocks in this generation.
Most investors don’t remember the last time this dynamic took hold, so they have no reference point for a time when technology wasn’t the preeminent sector of the stock market.
This will keep the table set for another year, or perhaps years.
what to see today
Economics
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8:30 AM EST: first unemployment insurance applicationthe week ending December 24 (forecast 225,000, previous week 216,000)
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8:30 AM EST: Continuous billingweek ending 17 Dec (1.706 million expected, 1.672 million the week before)
Earnings
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