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Volatility & Earning Season


U.S. Stocks ended mixed on Friday, 14th January 2022, led by a tech rebound in the final hour to end a volatile day and a volatile week. 

The unofficial start to earning season led by JPMorgan and Citigroup left more questions than answers. JPMorgan closed by 6.15% lower while Citi was down by 1.25%. 

“I expect more interest rate increases than is in the implied curve,” Dimon said Friday on a conference call with analysts after JPMorgan released its fourth-quarter results. “My view is a pretty good chance there will be more than four. It could be six or seven.” 

The 1% drop in commercial and consumer loans and higher costs reported by JPMorgan may be telling us that the economy is beginning to slow down and inflationary pressure are here to stay. 

This was also evident in the retail sales report on Friday. Sales declined by 1.9% in December, which was lower than expected. Friday’s data also showed how lingering shipping challenges, supply and labor constraints, the fastest inflation in decades, and the omicron variant are weighing on activity. 

Here are the closing levels on Friday: – 

 Last Change %Change 
Dow Jones 35,911.81. -201.81. -0.56% 
S&P 500 4,662.85. +3.82. +0.08% 
Nasdaq Comp 14,893.75. +86.94. +0.59% 
U.S. 10Y 1.78%   
VIX 19.19 -1.12 -5.51% 

In spite of the late rebound, stock still ended the week down. Making it 2 weeks in a row for the new year. 

Having said that, the fact that we did not close near the lows, especially for the Nasdaq, which was lows from October, tells us that this market wants to go higher. 

Through this, it feels like the bears are too afraid of the dip buying brigade and pulls away at any sign of strong buying. 

Meanwhile, inflation news or more specifically Fed’s response to inflation will drive the market for now. Plus, more comments from prominent people like Jamie Dimon’s comments on the number of hike will also cause ripples. 

During this interval, we will be seeing volatility in earnings announcements, but I still believe any indication on the number of rate hikes will tend to affect prices. 

With VIX near 20, it is telling us to prepare for more volatile sessions. 

Last week, I advised to let the dust settle before deciding on the next move. However, I don’t think the dust has settled yet, so it will be wise to remain cautious.  

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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