CNBC’s Jim Cramer said Monday that this year’s strength in banks is not reflecting the carnage in tech stocks as much as in the price-weighted Dow Jones Industrial Average.
“The losses the markets are taking are completely concealed by the banks that make the Dow Jones Average so good,” Cramer said, compared to the Nasdaq and the S&P 500, which have more Big Tech exposure. The Dow is measured solely by the average price change of 30 of its shares and counts the four major financial companies among some of its members (Goldman Sachs, JPMorgan Chase, Travelers and American Express). Visa is also in average but that stock is more dependent on consumer economic activity than rates.)
The S&P 500 and Nasdaq extended their losing streaks to five straight sessions on Monday, falling nearly 2% and more than 2.5%, respectively. The Nasdaq fell 4.5 percent last week. The S&P 500 lost nearly 2% last week.
As Cramer pointed out, the Dow has outperformed recently, losing just 0.3% over the past week. However, the blue-chip average fell more than 500 points, or about 1.5%, at a level on Monday, cut short by losses at Nike and Visa. The Dow and the S&P 500 both hit record highs early last week, before a rise in 10-year Treasury yields drove shares down.
Stocks in general — but growth stocks in particular, of which many are tech stocks — aren’t worth as much in a rising rate environment. However, banks make more money when rates are higher, which is driving profits in 2022.
“I think this market is treacherous. We need some stabilization in mega-tech. And we haven’t,” Cramer said on “Squawk on the Street.”
According to FactSet, the S&P 500 Information Technology Index, made up of some of Silicon Valley’s biggest names, has dropped nearly 7% so far this year. Over the same period, the S&P 500 Financial Index has gained nearly 4% year-over-year. All sectors of the S&P 500 fell on Monday. Financials and energy were in the green shortly after the open before reversing lower.
Tech stocks on Monday won’t be helped by the 10-year yield, which is again above 1.8%, a trend not seen since January 2020. The rapid increase in rates reflects expectations of monetary tightening measures or is in the works. federal Reserve. Investors are dumping tech stocks as rates rise on the assumption that their future earnings are now lower, which makes it difficult to justify the group’s higher valuations.
Goldman Sachs expects the Fed to raise interest rates from near-zero levels four times this year, with inflation rising and the country’s unemployment rate falling. In minutes from its December meeting last week, the Fed talked about a reduction in the balance sheet in addition to the indicated rate increase and confirmed a quick tapering off.
Investors are expected to get more clarity this week from Fed Chairman Jerome Powell when he testifies at a nomination hearing before a Senate panel on Tuesday. Consumer and wholesale inflation reports have been released on Wednesday and Thursday. Earnings season also begins this week, with quarterly results on Thursday and JPMorgan Chase, Citigroup and Wells Fargo on Friday.
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