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Giant stock market swings kick off 2022

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US equities are off to a rocky start to 2022. Below the surface, things are even more volatile.

More than 220 U.S.-listed companies with market caps above $10 billion are down at least 20% from their highs. While some have rebounded from their lows, many remain in bearish territory. They include S&P 500 giants like Walt Disney Co., Netflix Inc., Salesforce.com Inc. and Twitter Inc.

The tech-rich Nasdaq Composite was particularly turbulent. About 39% of stocks in the index are at least halved from their highs, according to Jason Goepfert of Sundial Capital Research, while the index is about 7% off its peak. At no other time since at least 1999 around the dot-com bubble have so many Nasdaq stocks fallen this far while the index was this close to its high, Mr Goepfert said.

The selling off of many individual stocks shows just how volatile stock markets have been in 2022. US stocks posted a second straight weekly decline last week, dragging the S&P 500 and Nasdaq down 2.2% and 4, 8%, respectively, to start the year. Some stocks and sectors have moved even more dramatically.

There has been a lot of disruption and divergence between winners and losers,” said Ilya Feygin, managing director of WallachBeth Capital.

Many investors have positioned themselves for the Federal Reserve to move on to raising interest rates this year. This propelled Treasury yields to the highest level since 2020, while bond prices fell, rippling through the market.

A turning point, traders said, was when the Federal Reserve in November warned of further monetary policy tightening, abandoning the idea that the current inflation spurt would be short-lived. This triggered a sell-off in stocks of speculative growth companies that were popular at the start of 2021.

Investors continued to revalue these companies, alongside other tech stocks, in the new year. For example, Cathie Woods’ flagship fund, the ARK Innovation ETF, has lost 15% this year and is down about 50% from its 52-week high, or in a bear market.

The list of companies that are 20% off their highs is also dotted with companies that went public in 2021, such as Rivian Automotive Inc. and Coinbase Global Inc.

The Fed put is dead in 2022,” said Justin White, portfolio manager of the T. Rowe Prices All-Cap Opportunities Fund, referring to the Fed’s tendency to cut rates or delay hikes. rates in response to market turmoil. It’s going to take a lot longer to get them to flash than before.”

Mr White said he had bought shares in financial and energy companies, which he said will benefit from rising interest rates. Trade has worked out so far: the energy and financials sectors gained 16% and 4.5% respectively in January, making them the best performing groups in the S&P 500. The S&P technology sector 500, down about 4.8%, was one of the biggest laggards.

In some cases, investors have soured on companies that have thrived in 2021, expecting earnings growth to slow after last year’s blockbuster returns. Analysts expect profits for S&P 500 companies to rise 22% in the fourth quarter from a year earlier, much less than in recent quarters, when results were compared to big losses during the pandemic. Tech stocks are expected to post lower earnings growth than the broader index.

Some of last week’s earnings reports showed corporate results cooling or being dented by the Omicron variant of Covid-19. Delta Air Lines Inc. said the Omicron variant will hurt fourth-quarter results and likely reduce demand in the near future. The results of the big banks showed that the pandemic profits they generated are starting to ebb. Meanwhile, new economic data showed that spending and manufacturing activity have slowed through the end of 2021, while consumer views on the economy deteriorate. Over the coming week, investors will scan results from Procter & Gamble Co. and United Airlines Holdings Inc. for clues about how the companies are handling rising prices and labor shortages.

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