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Stocks ended the holiday-shortened week (markets were closed Monday for Martin Luther King Jr. Day) how they started it – deep in the red.
And, as with Tuesday's trading, the bearish catalyst today was corporate earnings; specifically, dismal results from streaming giant Netflix (NFLX, -21.8%), which reported lower-than-expected subscriber numbers for its fourth quarter and forecast slowing subscriber growth in Q1.
"Investors are finally recognizing a huge risk that has been lurking around Netflix for years and that is increased competition in the streaming space," says David Trainer, CEO of Nashville-based investment research firm New Constructs. "Netflix has lost its first mover advantage in the streaming space and Disney (DIS) is its biggest threat."
Another possible culprit behind today's huge volatility is options expiration. "The options market has become critically important to stock investors, even if they don't trade options," says Michael Oyster, chief investment officer for asset-management firm Options Solutions.
"Friday's options expiration was the second-largest on record as $1.3 trillion of equity options expired. This impacted how stocks behaved and drove many prices higher or lower based on options action."
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Despite a brief midday pop into positive territory, the Nasdaq Composite ended the day down 2.7% at 13,768 – marking its first close below 14,000 since June 9 – the S&P 500 Index was off 1.9% at 4,397 and the Dow Jones Industrial Average was 1.3% lower at 34,265.
What's more, the Nasdaq suffered its worst weekly loss since March 2020 (-7.6%), while the S&P 500 and Dow also ended sharply lower on a weekly basis (-5.7%, -4.6%, respectively).
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Other news in the stock market today:
Next week could bring a fresh bout of volatility to the markets. In addition to Apple (AAPL) and Microsoft (MSFT) headlining a tech-heavy earnings calendar, there's also the two-day Federal Open Market Committee (FOMC) policy-setting meeting, set to kick off on Tuesday, Jan. 25.
While the Fed isn't expected to raise rates until at least the March meeting, anxiety about the start of the central bank's rate hikes has served as a spark for the recent market selloff, so that even just a gathering of central bankers could spook markets.
But while stock volatility may be exacerbated in the short term, the current rate cycle is needed in order for "a return to normal," says Brad McMillan, chief investment officer for registered investment advisor Commonwealth Financial Network. Yes, higher rates will likely mean slower growth and lower stock valuations, but "the economy and markets can and do adjust to changes in interest rates." he adds.
One way for investors to "keep calm and carry on," as McMillan advises they do, is to focus on the long term and make sure their portfolio is full of stable, dividend-paying stocks.
There are plenty of income-producing ideas across the market, with real estate investment trusts (REITs), utilities and consumer staples among the most generous payers – many of which show up on our list of the 22 best retirement stocks for 2022. The names featured here offer secure dividends based on solid fundamentals and have strong potential to keep increasing their payouts over the long term.
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