The Fed’s Hawkish Turn Clobbered Your Favorite Stocks. Here’s What Happens Next.

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A Tesla electric vehicle drives through the Las Vegas Convention Center loop at the CES 2022 show.

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Patrick T. Fallon/AFP/Getty Images

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The stock market is considered to be forward looking. It was shaken last week by the minutes of a meeting that ended more than three weeks ago.

The Federal Reserve released the minutes of its December meeting last Wednesday, and what was inside apparently took the market by surprise. Observers pointed to the fact that the Fed discussed closing its balance sheet — something Chairman Jerome Powell failed to mention in his press conference last month — and its perception of the job market, which appears to be close to full employment. it occurs.

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Investors took the news badly. Higher-priced tech stocks declined, as did most stocks, including Tesla (ticker: TSLA), Salesforce.com (CRM) and Moderna (MRNA). By the end of the week, the Nasdaq Composite was down 4.5% and the S&P 500 was down 1.9%. Dow Jones Industrial Average only,
which fell 0.3%, managed to end the week relatively complete.

It was a change in tone more than any one thing, says Chris Harvey, US equity strategist at Wells Fargo Securities, who said the Fed was most responsible for the market’s reaction. Minutes before, the market may have thought the Fed reluctant to tighten. Later, it turned out that this was not the case, as March rate hike likely Minutes rose from 50% just before its release to over 75% on Friday. “Two months ago, the market believed they had to push the Fed,” Harvey says. “It’s not like that anymore.”

For a market that’s both expensive and crowded, this wasn’t good news, as the priceless, most speculative stock — which had already been beaten, mind you — hit hard again. As of Thursday, 38% of Nasdaq shares had fallen 50% or more from their 52-week highs. The benchmark is down just 5.7% from its all-time high thanks to big tech giants like Apple (AAPL) and Microsoft (MSFT), which have grown so large they hide the weakness at the bottom.

“Whatever the fundamental and macro views, there is no doubt that investors are selling first and trying to figure out the rest,” writes Jason Goefert of Sundial Capital Research.

Even meme stocks found fighting the Fed difficult, if not impossible. For example, GameStop (GME) surged nearly 30% in aftermarket trading last Thursday on reports that it had created a division dedicated to cryptocurrency partnerships and was in the process of creating a marketplace for non-fungible tokens. As of the end of Friday’s trading, GameStop stock was up just 7.3%, and it ended the week up 5.2%.

Don’t view weak economic reports as “good” news. Friday’s payrolls report showed just 199,000 jobs were created in December, less than half of what economists had forecast. But that didn’t stop the 10-year Treasury yield rising 0.036 percent to 1.769% on Friday, its highest level since January 2020 near 3 a.m. That means it’s likely a big miss in Wednesday’s consumer-price-index reading, which is expected to show 7.1% year-over-year growth, and perhaps not even then, for the Fed to shift course.

For now, that means holding expensive and volatile stocks probably isn’t worth the reward, says Wells Fargo’s Harvey. “We need a re-evaluation of risk,” he says. “And that’s exactly what’s happening.”

Even GameStop can’t fight the Fed.

Write Ben Levishon at [email protected]

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