S&P 500 slips amid downside in tech names, now testing the 4700 level

• The S&P 500 is slightly more than 0.5% lower and testing the 4700 area amid losses in tech.
• As a result, the Nasdaq 100 is down over 1.5%, while the Dow is holding up better and is flat.

US equities mostly fell on Thursday, with losses in large-cap tech stocks leading the fall. The S&P 500 was last down about 0.5% and testing the 4700 level, while the Nasdaq 100 index was last down 1.4% and back nuder 15,700. Apple was down nearly 1.0%, Meta (Facebook) was down just over 1.0%, Amazon was down closer to 1.5%, Microsoft was down over 2.5% and Tesla was last down over 4.0%. Downside in these large-cap stocks was indicative of generalised underperformance in the S&P 500 information technology (-1.6%) and communications services (-0.6%) sectors.

The Dow held up better and was last trading barely in the red in the 36,250 area amid better performance in the industrials (+0.4%) and financials (+0.1%) sectors, which have a higher weighting in the index. Traders attributed the comparatively better performance in so-called “cyclical” (economically sensitive) stocks to hopes that producer price inflation may have reached its peak in December. MoM, headline producer prices rose 0.2%, a sharp deceleration from November’s 0.8% MoM rate of price growth, aided by signs of easing supply chain disruptions.

Other notable fundamental developments on Thursday included a mixed weekly jobless claims report, which showed initial claims tick up to 230K from previously closer to 200K, which some took as a sign of the short-term Omicron hit to the labour market. Moreover, Fed Vice Chair nominee Lael Brainard is currently testifying at a Senate hearing, but has so far stuck to the script and not said anything new or surprising regarding the outlook for policy in 2022 and beyond.

Amid the tech-led downside in equities on Thursday, the CBOE S&P 500 volatility index (or VIX) has been moving higher and is currently up about 1.2 points on the day to just under 19.0, leaving it still comfortably below last week’s highs above 23.0. US equity market focus now turns to the unofficial start of the Q4 earnings season this Friday, with big US banks including Morgan Stanley, JP Morgan and Citigroup all reporting results.

Traders were passing around Vanda Research’s weekly report on retail flows which showed that, ahead of the upcoming earnings season, retail investors increased their exposure to bank stocks. The report said that financials were one of the most bought equity sectors when compared to historical norms, as smaller investors picked up $289M in equities over the course of the last week vs the $190M average over the last two years.