S&P 500 and Nasdaq fall for a fourth day on spiking rates to cap the first trading week of 2022

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The S&P 500 fell on Friday at the end of a rough week for markets, which have come under pressure because of a spike in rates to begin 2022. Tech shares have led the losses.

The Nasdaq Composite dropped another 0.9% on Friday, extending losses from throughout the week to close at 14,951.98. The S&P 500 fell 0.4% to 4,677.02. The Dow Jones Industrial Average lost 4.81 points, or about 0.01%, to close at 36,231.86. The tech-heavy Nasdaq fell to its worst week since February 2021, down about 4.5% in the first five trading days of 2022. The S&P 500 is off by 1.8%, while the Dow is down only 0.29% as investors rotated into some value stocks amid the rise in rates.

“The stock market is undergoing somewhat of a transition right now, after a very strong 2021,” said Jay Pestrichelli, CEO of ZEGA Financial. “We are seeing more volatility in individual stocks compared to the indexes, and we are seeing a change in leadership in the market, as investors reconsider the high flying tech stocks of 2021 as interest rates rise.”

The 10-year Treasury yield topped 1.79% on Friday, continuing its amazing 2022 run from a 2021 year-end level of just 1.51%. The release of the Federal Reserve’s December meeting minutes on Wednesday were the major catalyst for the rate move. The meeting notes showed the central bank is ready to dial back its economic help at a faster rate than some had anticipated, including taking steps to shrink its balance sheet while raising rates.

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“A shift in Fed policy often injects volatility into markets,” said Keith Lerner, chief market strategist at Truist.

Tech stocks lost ground further on Friday as yields jumped, continuing a theme of the week as investors rotate out of the sector. With rates rising rapidly, investors are dumping riskier stocks trading on high valuations based on estimates of profit growth far off in the future.

Microchip Technology was one of the biggest decliners in the Nasdaq, down 3.9%. Other semiconductor stocks fell too, with Nvidia and AMD both down about 3%. Netflix fell 2.2%. Twilio lost 3.5%.

On Friday, the Labor Department reported the U.S. economy added far fewer jobs in December than expected. The nonfarm payrolls report showed an increase of 199,000 in December, though economists had expected growth of 422,000, according to Dow Jones.

While the headline number disappointed, there were some things in this jobs report that pointed to an improving economic picture and higher inflation. Average hourly earnings increased by 0.6%, above expectations. And the unemployment rate fell to 3.9%, the lowest level since Feb 2020 and well below the 4.1% expected.

So after some digestion following the jobs report, yields continued their march higher.

Software stocks were among the hardest hit shares for the week amid the rotation out of tech, with Salesforce down 10% and Adobe down more than 9% for the week. Crowdstrike moved about 7% lower. Nearly all megacap tech stocks finished the week lower. Netflix has lost 10% for the week, Microsoft which ended the day slightly higher, fell about 6% for the week. Alphabet fell about 5%.

However, while tech stocks drove most of the market losses, value names showed strength, particularly among energy and financial stocks. Schlumberger and Hess both climbed about 16% for the week. Wells Fargo rose 13% this week and Regions Financial gained 14%.

Elsewhere, GameStop shares jumped more than 6% Friday following news that the company is venturing into the crypto world with investments in a marketplace for nonfungible tokens and digital currency partnerships to create games and other items.

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