Equity Markets Are Mostly Flat, But Bonds Are On The Move

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It was a mostly flat start to the market today as the S&P 500 ($SPX) was down .04%, on the Nasdaq 100
($NDX) was down .03%, and the Dow Jones Industrial Average ($DJI) was down .03%, while the Russell 2000 provided some strength up to .08%.

There is little in the way of economic news this week, and the earnings calendar is also sparse, which is expected to ease trading volume today and tomorrow. Traditionally, however, the last trading day of the year sees increased activity as investors turn to last-minute tax harvesting.

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While the equity markets are not moving much today, the bond market is a different story. The yield on the 10-year Treasury note ($TNX) is up 2.63% today, bringing the yield to 1.52%. Keep an eye on financial stocks today to see how they react to bond sales.

While crude is down slightly today with a loss of .32%, gold is moving more strongly, down 1.01%, and is now sitting at $1,792.8/oz.

One of the big names running this morning is Tesla
(TSLA), up .50%. According to a regulatory filing, Tesla CEO Elon Musk sold another billion dollars worth of shares, according to Marketwatch, meaning he’s sold nearly $16 billion worth of TSLA stock since November.

In the other direction is Alibaba (BABA), which is down .95%, after Businesshala News reports Alibaba is in talks to sell its entire stake in Chinese social network company Weibo (WB).

Tomorrow, Dow 30. a very narrow group of shares in closed 0.26% higher, while $SPX ends a four-day winning streak. Large-cap stocks led on Monday, but it looks like mega-cap stocks in the Dow 30 were Tuesday’s winners. However, not all megacap stocks rose. The CRSP Megacap Index (CRSPME1) closed the day down 0.17%.

Technology stocks were the worst-performing sectors and the tech-heavy Nasdaq Composite (comp: GIDS) weighed in, closing 0.56% lower. Instead, investors appeared a bit more defensive as utilities, consumer staples and real estate were all in the top five. Of course, business volume was lower than usual as the week is sandwiched between major holidays.

Cal-Maine Foods Was a Consumer Staples Stock That Paused
(Calm). It rose 3.79% before announcing earnings after the close. However, investors were not impressed by the announcement as the stock fell 6.95% in after-hours trading. Despite the increase in sales, the company earned less than expected. The company cited high labor costs as a cut in profits.

Vista Outdoors (VSTO) grew by the news that the company would be acquiring Stone Glacier Hunting Gear. The stock gained 4% after the announcement. Vista has grown by more than 5000% over the past two years as players face ammo shortages.

health care care

As someone who spends a great deal of time in and participates in financial media, I have seen the health care sector become a favorite of many financial media analysts for 2022. Outside of some pharmaceutical companies that are making vaccines and therapeutics to fight COVID. -19, health care stocks have underperformed across sectors in 2021. However, the sector moved to the top of the pack in December with the health care select sector ($IXV) returning 6.35% for the month.

One of the reasons investors are looking to health care is because it is a defensive sector, and defensive sectors have become popular recently. many investors rotate areas, depending on how sectors perform during economic cycles. In 2021, the energy and materials sectors performed well due to rising inflation. These sectors often perform better in the late stages of economic expansion. As expansion progresses, many investors prepare for a potential recession or economic weakness by buying health care stocks because health care is one of those products that doesn’t matter to the economy.

Health care stocks are also undervalued compared to many other sectors. According to Yardeny Research, the health care sector has a forward price-to-earnings (P/E) ratio of 16.2. The forward P/E of the S&P 500 is 20.5. Technology is at 26.9, and Consumer Discretion is at 31.1. Lower valuations can attract more investors.

side by side: Doing business with sector rotation is not as easy as it may seem. The ups and downs of the market can make it appear that some sectors are consolidating, only for them to fizzle out. Another issue is that all sectors can rise or fall. Some sectors may be rallying sharply or falling slowly. Using tools such as comparison charts or relative strength indicators across different time frames can help investors identify strong groups. In the end, there is no guarantee that just because a group was strongest in one month, it will be strongest the next month.

Subject Values: Monitoring area assessment can help identify potential areas, but is not always the case. According to Yardeny’s research, the sectors with the lowest valuations include energy at 10.5 and financials at 14.1. Protective sectors have a P/E ratio of 16.2 for health care, 18.9 for utilities, and 19.9 for consumer staples. (Real estate was not covered in the report.)

Currently, inflation stocks have the lowest valuations when measured with a forward P/E ratio, while some defensive sectors such as consumer staples are valued closer to the S&P 500 at 20.5.

Lastly, I’ll be out of office for the next two days, so our next market update will be on Monday, Jan. In the meantime, happy new year everyone!

TD Ameritrade® Commentary for educational purposes only. Member SIPC.


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