U.S. stocks sink into a sea of red

U.S. stocks fell sharply on the last two days of this holiday-shortened week. The S&P 500 plunged -5.68% WTD (-7.73% YTD) and the Dow Jones Industrial Average slumped -4.58% (-5.70% YTD). Unsurprisingly, volatility had its biggest spike since early December (VIX index up +50% over the week at 28.85), reflecting tremendous uncertainty and risk aversion. The Nasdaq composite was hit the hardest (-7.55% WTD, -11.99% YTD) by the rout in Netflix stocks (-24.39% WTD, -34.02% YTD) due to underwhelming guidance. Small cap stocks did not weather the storm (Russell 2000 down -8.07% WTD, -11.46% since the beginning of the year). In this stressful environment, Jeremy Grantham, the famed asset manager who had accurately predicted the last three market bubbles warned that U.S. stocks may crash almost 50%.  

European equity indices also closed lower, though to a lesser extent. The MSCI EMU lost -1.55% while the FTSE 100 slid -0.65%. In Asia, the Shanghai Composite treaded water (+0.04%) while Japan’s Nikkei dropped -2.14%.

All the S&P sectors lose ground, consumer discretionary fares worst     

Amazon.com (-12.02%) and Tesla (-10.07%) were the biggest drag on the consumer discretionary sector (-8.49%, worst performer over the week). Communication services (-7.05%) were not far behind as Netflix stock’s descent into hell hurt sentiment on the entertainment and media industry. As an illustration, Discovery and Walt Disney took a nosedive (-16% and -9.58% respectively). FB Meta Platforms (-8.22%) was another detractor to the sector's performance. It was also a tough period for information technology (-6.94%) and financials (-6.44%) as Goldman Sachs continued the wave of disappointing quarterly results from the largest U.S. banks. Its shares plunged -9.7% after missing expectations on the bottom line as expenses rose while revenue declined.

Energy (-3.04%) snapped its four-week winning streak in spite of rising U.S. oil prices. WTI Crude rose to $85.14 a barrel (+1.57%). The most defensive sectors such as utilities (-0.79%) and consumer staples (-1.52%) managed to reduce losses to some extent.

Yields stabilize on unemployment data

U.S. jobless claims surged to a 3-month high suggesting that the omicron variant is weighing on the labor market. The 10-year T-note yield remained virtually unchanged at +1.77% but it had topped +1.88% Tuesday. In Germany, the 10-year Bund yield fell slightly from -0.045% to -0.064% while the French OAT yield was still high, rising from +0.33% to +0.34%.

Against this backdrop, prices of IG corporate bonds rose +0.07% in Europe and slipped -0.33% on the other side of the Atlantic. The trend remained bearish in the high-yield space (-0.38% in Europe, -0.84% in the U.S.). Emerging debt did better (+0.25% in local currencies) even though the dollar index bounced back (+0.47% at 95.62) as speculative positions in the greenback remained long. Elsewhere, gold was up (spot price at $1,835.38/Oz, +0.96%) and bitcoin dropped below $35,000, hitting a 6-month low.

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