Stock futures in the US fell, and bond yields hit two-year highs, which has made investors stress that upward interest rates will impact the large US technology companies at an increasing rate.
Investors expect a steady labor market and elevated inflation will direct the Federal Reserve to bring many interest rate increases this year.
Analysts surveyed by FactSet expect S&P 500 equity earnings to grow 22% year-on-year, up from 40% before.
In a rising-rate environment, it’s harder for growth stocks to borrow money, said Greg Bassuk, chief executive of AXS Investments.
Recently, new fears of extended price increases have been growing after authorities in China reacted to the Omicron virus variant by implementing lockdowns and travel controls. Investors are waiting for this earnings report to determine if companies can deliver healthy profits despite higher costs.
Brent oil has jumped even further than before, indicating that the Federal Reserve will likely be challenged by inflation. These concerns have been alleviated as demand expectations are recovering. Inventories are shrinking, and geopolitical risks are easing, leading to some forecasts of a USD100 crude price by the end of this year.
The lack of additional liquidity provided by the Fed purchase will also remove a drag on the market and the economy, which will keep asset volatility rising. This tightening also means that asset diversification benefits will decrease, leading to an increase in portfolio volatility.
Over USD 100 billion equity call deltas expire on January 21, 2022. This call expiration could cause fluctuations in the stock market, especially in growth stocks.
Disclosure: This article expresses my own views, and I wrote the article by myself. I am not receiving compensation for it. I have no business relationship with any company whose security is mentioned in this article.
Sources: FT.com, Bloomberg, MarketWatch, WSJ.com
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