Slide Deepens For Tech Stocks As Yields Rise – OANDA

OANDA – Tech Slide Deepens As Yields Rise, ADP Impresses, Oil Hangs Onto Gains Post EIA, Gold Rallies On Weaker Dollar, Bitcoin Steadies

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Wall Street

Wall StreetAccording to Agecroft Partners’ 13th annual predictions for the biggest trends in the hedge fund industry for 2022, the macro hedge fund sector could benefit from a shift away from fixed income assets this year as allocators try to diversify their portfolios into uncorrelated hedge fund strategies. Q3 2021 hedge fund letters, conferences and more Read More

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Tech Stocks Slide

Tech stocks remained under pressure after a robust private payrolls report sent Treasury yields higher. Equity traders are still betting on a strong US economy and that has them rotating out of big-tech and embracing cyclicals.  Ahead of what will likely be some rather hawkish Fed minutes, with the exception of the rotation trade, US stocks are struggling for direction.  The first half of the year will be all about a strong US growth outlook that should benefit cyclical stocks, but a sustained pullback with tech stocks is not justified given the Fed hasn’t officially started their interest rate hiking cycle.

ADP

ADP’s private payroll report shows the labor market remains super tight and that compliments the latest JOLTS report, Homebase small business employment data, jobless claims, and ISM employment index.  The upcoming nonfarm payroll report could come in much better than the 424,000 forecast and if it doesn’t traders will just expect the following month to make up for the miss.

ADP Chief Economist Richardson noted, “Job gains were broad-based, as goods producers added the strongest reading of the year, while service providers dominated growth… private sector payrolls are still nearly 4 million jobs short of pre-COVID-19 levels.”

Some traders are shrugging off the strong report as the data for this report does not include much of the omicron impact. The omicron impact could have a bigger impact with the January nonfarm payroll report, but regardless the labor market recovery should pick up by the Fed’s live policy meeting in March.

Oil

Crude prices tentatively pared gains after the EIA crude oil inventory report posted a smaller-than-expected headline draw, while gasoline demand plummeted the most since April 2020.  The EIA report was a mixed bag that didn’t have anything to change the tight outlook for the oil market.

A headline draw of 2.14 million barrels last week was the sixth consecutive decline, but the focus was on big builds with gasoline and distillate inventories, which were largely due to seasonal factors. Both crude and gasoline demand are lower but still headed in the right direction.

Energy traders are growing optimistic that once the omicron wave passes, a massive pickup in air travel will keep supporting the crude demand outlook. Air travel demand has improved in the US, but the key pickup in demand will come from Europe at the end of the first quarter.

Gold

Gold prices are higher as the dollar softens now that early Fed rate hikes have been mostly priced in.  A very good sign for bullion investors is that gold is holding up nicely despite the move with Treasury yields. As investors look at the year ahead, gold should benefit on both growing geopolitical risks (Russia/Ukraine, Turkey, and North Korea) and as a weaker dollar emerges from the outperformance with European and Asian equities.

Gold prices are comfortably above key support levels that include the 50- and 200-day SMAs along with the psychological $1800 level. Gold should hold remain fairly stable leading up to the nonfarm payroll report.  The Fed’s Minutes should be a non-event and confirm their December hawkish pivot, but it could be a market moving event if they address the balance sheet.  Any significant comments on addressing how they will go about balance sheet reduction could trigger a market moving reaction which could tentatively take away the luster from gold.

Bitcoin

Bitcoin is slightly higher as it is bouncing off key support that has been in place since last month.  Bitcoin is in desperate need of a catalyst as crypto traders struggle to buy ahead of the beginning of a Fed rate hiking cycle. The cryptoverse remains long-term bullish with Bitcoin and Ethereum but the short-term downward move might not be over.  Bitcoin has key support at the $45,500 level and after that it could be a freefall to $40,000.

Article By Edward Moya, OANDA

Updated on Jan 5, 2022, 4:35 pm

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