Rough Start For The Year & Inflation - Doo Prime News
Doo Prime News > Analysis > Expert Opinion > Rough Start For The Year & Inflation

U.S. stocks traded lower on Friday, 7th January 2022, posting the worst start for the S&P since 2016. Adding to this, the jobs report on Friday sealed the fate of a disappointing week.  

The U.S. unemployment rate fell below 4% and wages jumped last month, adding to evidence of a tight labor market. Nonfarm payrolls showed a 199,000 increase, which was lower than expected but the jobless rate fell to 3.9%. Meanwhile, the average hourly earnings were up by 0.6% as pay climbed 4.7% from a year earlier. 

The market took this to confirm that the Fed will move up the timetable on raising rates. 

For the week, the Nasdaq was down by 4.5% and the S&P 500 fell by 1.8%, while the Dow Jones was off by only 0.3%. But the S&P closed just above its 50-day moving average, a key technical reading that has attracted dip buying in the past. 

In addition, the yield on the benchmark 10-year yield hit 1.8% intraday on Friday before ending at 1.76%, jumping 25 basis points for the week. 

Here are the closing levels on Friday: – 

 Last Change %Change 
Dow Jones 36,231.66. -4.81 -0.01% 
S&P 500 4,677.03. -19.02 -0.41% 
Nasdaq Comp 14,935.9 -144.97. -0.96% 
U.S. 10Y 1.76%   
VIX 18.76 -0.85 -4.33% 

It was a bad start to the year and that leaves me wondering what the near term will bring. 

As I mentioned last week, the focus was going to be on inflation. Sustained inflation will force the hand of the Fed and bring about higher interest rates… quickly.  

Strong employment data may add to inflation and provide the Fed comfort to being a bit more aggressive. 

While this may not be new to the market (aggressive Fed moves), it does somewhat explain the recent price moves. 

I also can’t help but wonder if the selloff in crypto has something to do with the risk-off mode we are seeing. 

As we know, the strong returns last year from the equity markets plus crypto have attracted a lot of money into these investments. 

Through this, latecomers to the party would have had a rude shock to see their investments fall so quickly. 

Even early investors would not feel comfortable losing a lot of their gains especially in crypto where some were down in excess of 20% from the highs. 

Ultimately, this could also explain why equities seem to be well offered as it could be that there is a fear of losing what many had gained over 2021. 

It appears to me that any buying on the dips have been met with strong selling pressure. Also, it may be wise to let the dust settle further before trying to buy the dips. Picking bottoms is a very hard thing to do. 

Source: CBOE, Bloomberg  

This commentary is written by James Gomes 
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years. 

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