Stocks could face more turbulence in the coming week

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, United States, November 29, 2021.

Brendan McDermid | Reuters

Volatility could continue to weigh on the markets after a week of violent swings that pushed down many stocks.

In the coming week, investors are waiting for more news on the omicron Covid variant and another inflation report on Friday that is expected to show consumer prices to remain the highest in three decades.

Over the past week, stocks have sold amid concerns over the omicron variant and concerns that the Federal Reserve will move away from its accommodative policies and raise interest rates sooner than expected. Fed Chairman Jerome Powell told a Congressional panel on Tuesday that the central bank would consider accelerating the cut to its $ 120 billion monthly bond buying program when it meets on 14 and December 15. The Federal Reserve implemented its bond buying program in early 2020 to support the economy during the pandemic.

“December will be a bit hectic as we will probably have to wait until earnings season to get back to fundamentals,” said Jack Ablin, Cresset chief investment officer. “As far as most ratios suggest, price / sales, price / earnings, when you throw it in the hopper with interest rates and everything in between, things aren’t that bad. I don’t. . think we are teetering on the edge of a cliff. “

But Ablin said Powell’s comments baffled investors, who fear the Fed may also accelerate interest rate hikes. Powell admitted that he was wrong about whether inflation was “transient” or temporary, scaring investors. Bond purchases are now expected to end in June.

“I’m not sure what investors are reading about inflation. Do they think the Fed is going to raise rates, anticipate it too soon, and everything will change? Since Powell removed ‘transient’ from his speech, investors have been somewhat off balance, ”Ablin said.

The consumer price index or CPI for November is due on Friday morning. Economists polled by Dow Jones predict it rose 0.6% on a monthly basis, or 6.7% year-over-year. That compares to a 0.9% gain in October and a 6.2% year-over-year jump, the biggest move in three decades.

Risky names slammed

Growth and growth were among the hardest hit on Friday, as investors bailed out some of the riskier stocks. As stocks plunged on Friday, Treasury yields fell. Yields move opposite to price, and the move was seen as a flight to safety. The yield on 10-year bonds fell to 1.35%.

ETF ARK Innovation lost 12.6% over the week. Many of the fund’s growth stocks have plunged into bearish territory. “I think investors should keep in mind that this is not a 15 week strategy. It is a 15 year strategy as far as we’re concerned,” Ablin said.

The Federal Reserve should be calm in the coming week. Fed officials traditionally do not make important speeches during the blackout period, which is the week ahead, before their December 14-15 meeting. One exception is Minneapolis Fed Chairman Neel Kashkari, who speaks at the Center for Indian Country Development Research summit on Thursday.

Much of the focus will be on how the market itself behaves.

“Since the bearish day outside of November 22, all of the force has been sold with a lot of damage under the hood,” said Scott Redler of T3Live.com. “Now, finally, some of the names of the leaders show faulty action.” He noted that Microsoft and Apple were weaker.

“The money isn’t hiding on Amazon, Google or Facebook. They haven’t been special in weeks,” he said.

The S&P fell from its 50-day moving average for a second day on Friday. The 50 day is at 4,544. This is a signal to some market technicians that the index is about to collapse. The 50-day moving average is the average closing price for the past 50 days.

“Basically it’s indeed a new test of support because we had the rally of relief [Thursday]”said Katie Stockton, founder of Fairlead Strategies. She said the S&P 500 had to close below 50 days for two consecutive days before the move was considered a failure.

“The action in high growth, high multiple names is not a good sign,” Stockton said. “We have signs of downside exhaustion, but not as widespread as I hoped. We are seeing some of the heavyweights, like Adobe for example, pulling out levels like the 50-day moving averages.” She said some of these big names have now joined the sale.

“We’re just watching how badly it goes. Monday will be the telltale,” Stockton said. “It also gives it the weekend to settle in… The extremes have gotten a little more extreme. The sentiment is the most oversold from a contrarian perspective since the October low.”

Calendar for the upcoming week

On Monday

Earnings: Coupa Software, Sumo Logic

Tuesday

Earnings: Toll Brothers, Autozone, John Wiley, Designer Brands, Dave & Buster’s, Casey’s General Store, ChargePoint

8:30 a.m. Trade balance

8:30 am Productivity and costs

1:00 p.m. Auctions of $ 54 billion 3-year bonds

3:00 p.m. Consumer credit

Wednesday

Earnings: Campbell Soup, GameStop, Brown-Forman, Vera Bradley, Rent the Runway, United Natural Foods, Thor Industries

7:00 a.m. Mortgage applications

10h00 JOLTS

1:00 p.m. Auctions of $ 36 billion 10-year bonds

Thursday

Earnings: Costco, Oracle, Hormel, Lululemon, Ciena, K. Hovnanian, Broadcom, Vail Resorts, Chewy, American Outdoor Brands

8:30 am Unemployment claims

1:00 p.m. Treasury auctions $ 22 billion in 30-year bonds

Friday

8:30 am IPC

10:00 am Consumer sentiment


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