Market Insights / Commentary

Stocks have biggest drop in two years as rates rise

By David Russell

Stocks just took their deepest dive in two years as higher interest rates caused investors to take profits.

The S&P 500 cratered 3.85 percent between Friday, January 26, and Friday, February 2 — its biggest weekly decline since early 2016. The selloff contrasted with the preceding string of 10 winning months, and launched the VIX “fear index” to its highest level since Donald Trump was elected president.

Most of the economic news was positive. Employers added more jobs than expected and fewer workers got pink slips. Manufacturing, construction and factory orders all beat estimates. Two separate measures of consumers’ moods also exceeded projections.

But how much of that good news was already priced in? What if attention should refocus on inflation, rising interest rates and wage pressures? The Federal Reserve’s post-meeting policy statement seemed to express those thoughts. Ditto with productivity numbers from the Labor Department.

It was the biggest week of earnings season for major technology names. Amazon.com (AMZN) performed best of the megacaps. Alphabet (GOOGL) and Apple (AAPL) got sold, while Facebook (FB) held its ground.

Every major sector fell at least 2 percent, but energy fared the worst with a drop of more than 6 percent. At the industry level, metals and housing took the harshest drubbings. Banks and airlines fell the least.

Only three companies in the S&P 500 rose double digits last week. Dr Pepper Snapple (DPS) rallied 24 percent after getting acquired. Chipmaker Qrvo (QRVO) gained 19 percent on strong results and consumer-products conglomerate Newell Brands (NWL) clawed back 10 percent from a late-January implosion. Meanwhile, 25 index members declined 10 percent or more.

Crypto currencies also got slammed as Bitcoin fell to its lowest levels since November.

Earnings remain active this week although the economic calendar is lighter.  Bristol-Myers Squibb (BMY) gets the ball rolling today, followed by the Institute for Supply Management’s services index shortly after the opening bell.

General Motors (GM) and Dunkin’ Brands (DNKN) are the big names tomorrow morning. Walt Disney (DIS) and Gilead Sciences (GILD) follow after the closing bell.

Wednesday features crude-oil inventory data, along with earnings from Michael Kors (KORS) and 21st Century Fox (FOXA). Initial jobless claims, Twitter (TWTR) and Yum Brands (YUM) are due the next morning. Thursday’s post-market session brings tech names like NVIDIA (NVDA), Activision Blizzard (ATVI) and Expedia (EXPE).

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