* U.S. stocks closed lower collectively, and chip stocks fell heavily
* Geopolitical situation escalated, US oil rose 5%
*The new bond king expects the Fed to raise interest rates five times this year
On Friday, investors continued to digest inflation data, which hit a 40-year high, with growing expectations of the Fed's accelerated tightening of monetary policy. In the afternoon, geopolitical tensions returned to increase market sell-off, and US stocks fell collectively.
As of the close, the Dow was down 503.5 points, or 1.4 percent, at 34,738.1 points; the S&P 500 was down 85.4 points, or 1.9 percent, to close at 4,418.6 points; and the NASDAQ outperformed the remaining two major stock indexes, losing 394.5 points or 2.8 percent at 13,791.2 points.
Geopolitical situation escalates, U.S. oil surges 5%
Tensions between Russia and Ukraine have escalated again, with both the U.S. and British governments advising their citizens to leave Ukraine as soon as possible, and the European Union beginning to evacuate non-essential staff in Ukraine. As Russia is a key producer of oil and gas, geopolitical conditions pushed up energy prices, with WTI crude oil futures for Delivery in March surging 5% intraday to $94.66/b, hitting their highest since Sept. 30, 2014; Brent crude futures for April delivery closed 3.3% higher at $94.44/b, rising through $95/b during the day.
In terms of sectors, benefiting from the sharp rise in oil prices, energy is the best performing sector, the S&P 500 energy sector rose 2.8% against the trend, Chevron and ExxonMobil rose by 2.0% and 2.5% respectively; technology was the leading sector, large technology stocks sold heavy pressure, Tesla fell 4.9%, Netflix fell 3.7%, Amazon fell 3.6%; worried about the epidemic exacerbated supply chain bottlenecks, chip stocks weakened, Chaowei Semiconductor and Xilinx both plummeted 10.0%, Nvidia fell 7.3%, Qualcomm fell 5.4%.
Risk aversion heated up, with spot gold rising 1.6% at one point to $1,855.17 an ounce, a new high since Nov. 19 and a cumulative 2.5% increase this week.
John Lynch, chief investment officer at Wealth Management at wealth management firm Comica Wealth Management, commented that investors always sell before asking questions, and it is conceivable that the stock market will continue to cut by 10%, and growth and defensive stocks may outperform the market in the early stages, but in the context of the global cyclical recovery, the company speculates that value stocks and cyclical stocks will benefit the most.
Summing up the week, the gradual and gradual expectation of interest rate hikes weighed on the three major stock indexes, with the Dow falling 1.0% weekly, the S&P 500 falling 1.8% and the NASDAQ down 2.2%. Savita Subramanian, a strategist at Bank of America, wrote in the minutes sent to customers that the S&P 500 index currently forecasts a price-to-earnings ratio of 20 times, a new low since the epidemic, but the indicator is still well above the 14-18 times price-earnings ratio in the 2015-2019 rate hike cycle, and 28% higher than the historical average of 15.6 times. Although inflation shows no signs of easing at the moment, and given the good fundamentals, the bank is not entirely bearish on equities, but the market is expected to remain volatile throughout the year.
Rate hikes are approaching
Jeffrey Gundlach, CEO of Double Line Capital and known as the "new debt king", said in an intraday interview with foreign media CNBC that the market consensus is that inflation will continue to explode, the Fed is obviously lagging behind the situation, and the interest rate hike process will have to exceed market expectations. "Although I still expect inflation to ease, the speed and magnitude of the price decline may be disappointing, and we think inflation is likely to be below 5% in 2022." He expects the Fed to raise rates five times this year, with a one-third chance of raising rates above 50 basis points in March.
As of the close, the Chicago Mercantile Exchange's Fed Watch Tool showed that traders predicted a 47.9 percent probability of betting on a 25 basis point hike in March and a 52.1 percent probability of a 50 basis point hike.
Gunnrak noted that as the U.S. enters a tightening cycle, risk assets will face a difficult environment and must be repriced in response to higher interest rates. He expects the 10-year Treasury yield to rise to 2.5 percent by the end of the year. The previous day saw the 10-year Treasury yield break through 2 percent for the first time since August 2019; the most rate-sensitive two-year Yield surged more than 26 basis points on Thursday, its biggest one-day gain since 2009, reaching a peak of 1.63 percent on Friday.
In terms of individual stocks, sports brand Under Armour plunged 12.5% after disclosing its earnings report. For the three months ended Dec. 31 last year, the company had revenue of $1.53 billion and adjusted earnings of 14 cents per share, all of which were better than expected, however, the company warned that in the first quarter of this year, its gross margin would decline by 200 basis points from the same period last year, mainly due to higher gross margin due to higher freight rates. Due to the ongoing disruption of the supply chain, Under Armour was forced to use more expensive air freight to transport products to ensure it had sufficient inventory.