Daily market review

United States

Equities dropped with growth stocks down the most as bond yields extended their recent uptick after hawkish-sounding minutes from the Federal Open Market Committee's Dec. 14-15 meeting. The Dow Jones industrial average lost 1.1 percent, the S&P 500 fell 1.9 percent and the NASDAQ fell 3.3 percent.

Bond yields rose and growth stocks fell further at midafternoon on release of FOMC minutes showing policy-makers actively discussing policy normalization in light of the economic outlook, with some seeing a faster runoff in the Fed's balance sheet than in the past. Highly-valued FANMAG and momentum stocks were hit hard, with Apple, Invidia, Microsoft, Tesla and others extending their losses into the close. Laggards included technology, biotechnology, housing, real estate, and retail.

Value/cyclicals held up best, including industrial metals, energy, machinery, and industrials, but these sectors joined the selloff as risk appetite dried up in the afternoon. Investors have been rebalancing into these sectors and away from growth/momentum plays that worked during much of the pandemic. Many investors expect an early peak in the Omicron variant, to allow the recovery and expected Fed tightening to proceed.

Among companies in focus, Salesforce, down 8.3 percent, and Adobe, down 7.1 percent, suffered from analyst downgrades. Amazon, down 1.9 percent, depressed consumer discretionary stocks. Homebuilders sold off late, with Lennar down 1.5 percent. Microsoft, down 3.9 percent, weighed on the major indexes. On the positive side, US Steel gained 2.4 percent as metals prices rose.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 12 cents to US$80.17 while spot gold fell US$6.70 to US$1,810.28. The US dollar was mixed vs. major currencies. Yields on the US Treasury 30-year bond rose 2 basis points to 2.09 percent, and the 10-year note gained 5 basis points at 1.70 percent.


Equities improved with autos and reopening plays leading as investors remain hopeful the Omicron variant will fade soon. The Europe-wide STOXX 600 firmed 0.1 percent, the German DAX gained 0.7 percent, the French CAC rose 0.8 percent, and the UK FTSE 100 was up 0.2 percent.

Among sectors, autos & parts paced the day's winners with Renault up 4.8 percent after Qualcomm said it would boost chip supplies for the automaker. Daimler gained 3.6 percent and BMW rose 2.2 percent after reporting strong unit sales. Travel & leisure advanced as investors expect only limited travel restrictions in the face of surging Omicron variant cases. Basic resources and oil & gas stocks outperformed as investors rotated into cyclicals.

On the downside, utilities, food & beverage, technology, and real estate lagged. Uniper, the German utility, fell 2.3 percent after it was forced to seek financing to cope with surging natural gas prices. Nestle, the food giant, lost 2.7 percent after an analyst downgrade amid profits concerns linked to rising input costs.

Asia Pacific

Most markets fell as tech stocks extended recent declines on a global rotation out of growth stocks on rising interest rates while coronavirus worries added to the day's negative sentiment.

Chinese technology, internet, and biotechs tracked Tuesday's NASDAQ selloff as China's CSI 300 index and the Shanghai composite both fell 1.0 percent. Value stocks held up better. China Huarong fell 48 percent as it resumed trading after a government bailout.

Hong Kong's Hang Seng index dropped 1.6 percent with big tech stocks leading the decline. Meituan, down 11 percent, and Tencent, down 4.3 percent, were among the hardest hit. Banks and oil & gas stocks held up better.

South Korea's KOSPI lost 1.2 percent and the Taiwan Taiex eased 0.1 percent on tech stock losses.

Japan's Nikkei 225 rose 0.1 percent and the Topix gained 0.5 percent as strength in value stocks topped weakness in growth sectors. Banks, automakers, insurance, and metals were among the best performers. Toyota Motor rose 2.6 percent after US sales results for 2021 showed it topped General Motors for the first time. Sony rose 3.7 percent after saying it will explore entering the electric vehicle market.

Australian equities retreated from recent highs as the All Ordinaries declined 0.3 percent. Investors focused on rising bond yields and expectations for near-term Federal Reserve policy action, along with negative coronavirus headlines.

Looking ahead*

In Asia/Pacific, Japanese PMI composite final and Chinese PMI composite reports are scheduled for release. In Europe, the following are on tap: German manufacturers' orders, UK PMI composite final, Eurozone PPI, and Germany CPI. In North America, the following are due: US international trade in goods & services, US jobless claims, US factory orders, US ISM services index, and Canadian merchandise trade.

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