Giant stock swings kick off 2022

Hundreds of U.S.-listed companies are off more than 20% from highs. Many are in a bear market.

  • By Gunjan Banerji and Peter Santilli,
  • The Wall Street Journal
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U.S. stocks are off to a rocky start in 2022. Under the surface, things are even more volatile.

More than 220 U.S.-listed companies with market capitalizations above $10 billion are down at least 20% from their highs. While some have bounced from their lows, many remain in bear-market territory. They include S&P 500 (.SPX) behemoths like Walt Disney Co. (DIS), Netflix Inc. (NFLX), Salesforce.com Inc. (CRM) and Twitter Inc. (TWTR).

The tech-heavy Nasdaq Composite (.IXIC) has been particularly turbulent. Around 39% of the stocks in the index have at least halved from their highs, according to Jason Goepfert at Sundial Capital Research, while the index is roughly 7% off its peak. At no other point since at least 1999—around the dot-com bubble—have so many Nasdaq stocks fallen that far while the index was this close to its high, Mr. Goepfert said.

The selloff in many individual stocks highlights how shaky the stock market’s 2022 has been. U.S. stocks last week posted a second-straight weekly decline, dragging the S&P 500 and Nasdaq down 2.2% and 4.8%, respectively, to start the year. Some stocks and sectors have moved even more dramatically.

“There’s been a lot of disruption and divergence between winners and losers,” said Ilya Feygin, a managing director at WallachBeth Capital.

Many investors have been positioning for the Federal Reserve’s shift to raising interest rates this year. That has sent Treasury yields to the highest level since 2020, while bond prices have tumbled, rippling across the market.

A turning point, traders said, was when the Federal Reserve in November warned of tighter monetary policy ahead, abandoning the notion that the current bout of inflation would be short-lived. That triggered a selloff in shares of speculative growth companies that had been popular in early 2021.

Investors have continued to re-evaluate those companies, alongside other tech stocks, in the new year. For example, Cathie Wood’s flagship fund, the ARK Innovation ETF (ARKK), has lost 15% this year and is down around 50% from its 52-week high, or in a bear market.

The list of companies that are off 20% from their highs is also sprinkled with companies that went public in 2021, such as Rivian Automotive Inc. (RIVN) and Coinbase Global Inc. (COIN).

“The ‘Fed put’ is dead in 2022,” said Justin White, portfolio manager of T. Rowe Price’s All-Cap Opportunities Fund, referring to the Fed’s tendency to cut rates or hold off on rate increases in response to market turmoil. “It’s going to take a lot more to make them blink than before.”

Mr. White said he has been buying shares of financials and energy companies, which he thinks will benefit from rising interest rates. The trade has worked so far: The energy and financials sectors have gained 16% and 4.5%, respectively, in January, making them the best-performing groups in the S&P 500. The S&P 500’s tech sector, down around 4.8%, has been one of the biggest laggards.

In some cases, investors have soured on companies that flourished in 2021, expecting profit growth to slow after blockbuster returns over the past year. Analysts expect S&P 500 companies’ profits to rise 22% in the fourth quarter from a year earlier, much lower than in the past few quarters, when results were being compared with big losses during the pandemic. Tech stocks are expected to record lower profit growth than the broader index.

Some of last week’s earnings reports showed that corporations’ results are cooling or have been dented by the Omicron variant of Covid-19. Delta Air Lines Inc. (DAL) said that the Omicron variant hurt fourth-quarter results and would likely crimp demand in the near future. Results from the big banks showed that the pandemic profits they churned out are starting to ebb. Meanwhile, fresh economic data showed that spending and manufacturing activity slowed to end 2021, while consumers’ opinions on the economy are worsening. In the coming week, investors will be parsing results from Procter & Gamble Co. (PG) and United Airlines Holdings Inc. (UAL) for clues on how companies are managing higher prices and labor shortages.

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