January Shows A Tale Of Two Markets As Tech Gets Hit

January has generally not been kind to investors. Many countries and sectors have lost money for 2022, despite a mild rally very late in the month. Of course, there are exceptions such as energy-related stocks and the Brazilian stock market, but many stocks, countries and sectors are in the red.

The market decline has been broad with many fixed income and commodity investments losing money too. Perhaps, in part, because the Fed has signaled plans raise rates relatively aggressively in 2022, with rates expected to increase in March and maybe continue on up for much of 2022. Yet, we are just one month into the year, and though down, many markets aren’t in correction territory currently.

Tech Selloff

Tech has been among the hardest hit sectors. In tech profits for many firms are expected to come further in the future, rising rates suggests the value of those potential profits may be less in today’s money. For example the tech-heavy NASDAQ is down more than the more broadly-weighted S&P 500 currently. At the time of writing the NASDAQ is down approximately 11% for 2022 so far, compared to a 7% loss for the S&P 500.

However, the fact that larger tech names have held up reasonably well conceals a lot of pain even across different tech stocks. Companies such as Apple, Microsoft and Amazon make up a lot of most stock indices and are down, but not massively so. However, Ned Davis Research found that over a third of NASDAQ stocks are off by over 50% from their highs in mid January.

So although, the picture for major stock indices is not too bad, there is a lot of pain in tech currently. It’s not evenly distributed. Some of the larger household names have felt less pain. For example, arguably less well-known tech names such as Cloudflare and Unity Software, among many others, have halved in price since their highs of mid November.

The January Barometer

With January in the red, the January Barometer is now one omen that 2022 may prove to be a challenging year for investors. That’s especially true, if the Fed does raise rates as many currently expect.

Of course, calling the market on any single factor is a stretch, but with valuations relatively fully valued compared to history, the Fed looking to raise rates and the market trending down for much of 2022 so far, there are reasons for investors to be cautious. Especially as the exuberance that we saw in much of 2021 may have faded.