Week in Review: January 21, 2022

Markets suffered their worst week since March 2020, as concerns about higher interest rates and inflation dragged stocks lower. Not even a relatively good start to earnings season was able to assuage investor concerns. Both the S&P 500 and NASDAQ fell below their 200-day moving averages, a level which technical analysts view as being supportive of a security’s price. This invariably led to talk of a “death cross,” when a security’s 50-day moving average closes below its 200-day moving average. Such an occurrence is thought to portend a deeper selloff. While attention grabbing, few investors put much credence in technical analysis.

Interest rates were volatile during the week, with the 10-Year Treasury yield rising as high as 1.89%, its highest level since Jan. 2020, before ending the week effectively unchanged. Paradoxically, higher yields led investors to sell stocks and seek the relative safety of bonds, thereby driving bond yields back down.

Through Friday, 13% of S&P 500 companies had reported 4Q21 earnings.  Thus far, 80% have beaten their earnings estimate. According to industry group FactSet, 4Q21 earnings are currently projected to grow 22% from 4Q20. With so much focus on inflation, investors will be closely scrutinizing company reports and questioning management teams to determine the extent to which companies can continue to defray the cost of higher input prices and wages. Investors will also be awaiting the conclusion of the Federal Reserve’s meeting this upcoming week to see if the central bank announces any new policy changes.