The S&P 500 and Nasdaq Composite erased their early losses to finish higher on Friday, 4th February 2022, ending yet another volatile week. (At this rate, I sound like a broken record.)
Blow-out earnings from Alphabet (Google) and Amazon (+13.5%) overshadowed the zero growth in the user number of Meta (Facebook), which has caused it to drop by more than 20%.
Stronger than expected U.S. Job numbers released on Friday, shows a 467,000 gain in nonfarm payrolls, which exceeded all economists’ projections, followed by a 709,000 total upward revision to the prior two months.
The unemployment rate however ticked up to 4% from 3.9%. Whereas, the average hourly earnings rose by 0.7% in January and 5.7% from a year ago.
The ECB kept rates unchanged, but the Bank of England rose rates by 25 basis points which was expected.
What was not expected is the number of dissenters who were calling for a 50 bps hike, indicating a more aggressive stance from the BOE.
Crude oil soared to a fresh seven-year high near $93 a barrel.
U.S. Treasury prices fell with the 10-year yield, briefly topping 1.93%.
For the week, the Dow Jones average added 1.1%, the S&P gained 1.5%, and the Nasdaq jumped 2.4%.
Here are the closing levels on Friday, 4th February 2022: –
| Last | Change | %Change | |
| Dow Jones | 35,089.74. | -21.42. | -0.06% |
| S&P 500 | 4,500.53 | +23.09. | +0.52% |
| Nasdaq Comp | 14,098.01 | +219.19. | +1.58% |
| U.S. 10Y | 1.91% | ||
| VIX | 23.22 | -1.13 | -4.64% |
Looks like the volatility in the market is not going away any time soon.
After rallying for the first 3 days of the week, the S&P gave up its gains and was only salvaged by Amazon’s results, which lifted stocks against the pressure of central banks possibly raising rates aggressively.
The fear is, we have seen the best in earnings, and there may not be more to look forward to.
This will place focus on the inflation story, average hourly earnings for example, and other inflation related data to come.
This tug of war between earnings and rising rates will continue for the near term until a victor is named. Who will be the victor? Earnings or Rates? It is going to be hard to call.
We are moving from quantitative easing (QE) to quantitative tightening (QT) in a quick turnaround. Is the market prepared for this quick change after being supported by easy money for so long?
I fear the bears will feed into this and pressure more downside for the markets.
At least for now, the S&P has recovered above its 200-day moving average which is a positive sign, but it is still below the 100-day moving average. So, technically the S&P is still not out of the woods yet.
For now, it looks like the roller coaster ride is not over yet.
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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