S&P 500 Closes Flat as Tech Turnaround Sparks Rebound

By Yasin Ebrahim

Investing.com – The S&P 500 cut losses to end flat Monday as tech staged a turnaround, shrugging off growing expectations for a faster pace of monetary policy tightening from the Federal Reserve.

The S&P 500 fell 0.1% and the Dow Jones Industrial Average slipped 0.5%, or 163 points. The Nasdaq closed 0.05% higher, erasing a 2.7% intraday loss.

Tech clawed back intraday losses after starting the day on the back foot following expectations for a more aggressive pace of rate hikes, the enemy of growth stocks. Goldman Sachs lifted its Fed rate hike forecast to four hikes this year compared with prior estimates of three hikes.

Pointing to “declining labor market slack and “upside inflation risks,” Goldman’s Chief Economist Jan Hatzius said the bank continues “to see hikes in March, June, and September, and have now added a hike in December for a total of four in 2022.”

The rate-hike outlook comes just a day ahead of Fed Chairman Jerome Powell’s confirmation hearing on Tuesday, when the Fed chief may offer fresh clues on monetary policy.

Big tech closed well above its lows, with Meta Platforms (NASDAQ:FB), formerly know as Facebook and Amazon (NASDAQ:AMZN) closing lower. Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT), and Alphabet (NASDAQ:GOOGL) ended the day higher.

Semiconductor stocks also rebounded off lows to help the broader tech sector recover.

The more cyclical, or value areas of the market including energy and financials, which tend to perform well in an increasing interest rate environment continued to be favored.

“[T]he cheapest stocks tend to outperform the most expensive stocks when interest rates are rising. Today, energy and financials remain well represented on the list of the cheapest names, while technology remains well represented on the list of the most expensive names,” {{RBC said in a note}}.

“[W]e think the outperformance trade in value/cyclical isn’t done yet,” it added.

Financials were up about 0.9%, with major Wall Street banks trading just below the flatline ahead of the quarterly earnings season, which gets underway on Friday.

JPMorgan (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) report earnings on Friday.

Lululemon Athletica (NASDAQ:LULU), meanwhile, warned that fourth-quarter results would suffer hit from the impact of the omicron Covid-19 variant. Lululemon now expected fourth-quarter adjusted earnings per share also toward the low end of its range of $3.25 to $3.32, with revenue also expected within the lower of guidance range of $2.13 billion to $2.17 billion.

In deal making news, Zynga (NASDAQ:ZNGA) agreed to be acquired by video game maker Take-Two (NASDAQ:TTWO) Interactive in a deal worth $12.7 billion, sending its shares more than 40%. Take-Two fell 13%.

“We’ve been anticipating a strong start to the year for value/cyclical, followed by a pivot back to growth/secular later in the year,” RBC said. “So far that’s playing out, and we think the outperformance trade in Value/Cyclical isn’t done yet.”

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