Getty Images
Monday's fairly broad market rally turned into more of a two-pronged move Tuesday as economic data and rising interest rates sparked gains in cyclical stocks.
The Institute for Supply Management's purchasing managers' index reading for December declined 2.3 points to 58.7, well below estimates for 60.0 (anything above 50 represents expansion). However, Barclays economist Jonathan Millar saw in the numbers "significant easing of supply pressures, which is an encouraging sign with disruptions from the omicron variant likely not fully reflected in December."
Also dragging on stocks was another hike in the 10-year Treasury, whose yield reached 1.68% to close in on highs not seen since November. That helped spark cyclical sectors including financials (+2.6%), energy (+3.5%) and industrials (+2.0%), but it proved a weight on technology (-1.1%) and consumer discretionaries (-0.6%).
"If this all sounds familiar that's because it is as we've seen these bouts of Treasury volatility drive massive rotations within equity markets throughout much of last year," says Michael Reinking, senior market strategist with the New York Stock Exchange.
As for the major indexes?
Sign up for Kiplinger's FREE Investing Weekly e-letter for stock, ETF and mutual fund recommendations, and other investing advice.
The Dow Jones Industrial Average gained 0.6% to easily rewrite the record books with a close at 36,799, while the S&P 500 Index slightly dipped from yesterday's new high, to 4,793. The Nasdaq Composite took a dive, however, off 1.3% to 15,622.
YCharts
Other news in the stock market today:
The early innings of 2022 could be a doozy, especially if you're overweight a few sectors in particular.
"Given the rising threat of the omicron variant and its potential impact on economic conditions and consumer behavior, the first quarter of 2022 will likely feature the elevated volatility that we saw in the fourth quarter of 2021," says David Keller, chief market strategist at StockCharts.com.
"The deepest pullback in the S&P 500 [in 2021] was only about 6%, while most years will experience at least one drawdown of over 10%. Higher volatility also suggests a higher probability of deeper corrective phases, so 2022 may return back to the normal routine of at least one steeper drawdown of over 10%. … I would not be surprised if that deeper pullback occurs in the first quarter."
Two sectors stand out as particularly vulnerable given both their sensitivity to interest-rate moves of late and their sky-high valuations: technology firms and consumer discretionary companies, which are the priciest pockets of the markets based on expected earnings for the year to come.
The latter is number one with a bullet, at a multiple of 31.1 versus 21.1 for the S&P 500. Such high prices can act as a natural handicap against returns, especially in a volatile market, so individual-stock investors will have to be particularly discriminating when evaluating opportunities for the year ahead.
As we near the end of our sector-by-sector look-ahead, check out our latest: the top consumer discretionary picks for 2022.
Kiplinger is part of Future plc, an international media group and leading digital publisher. Visit our corporate site www.futurenet.com
© Future US LLC, 10th floor, 1100 13th Street NW, Washington, DC 20005. All rights reserved.
