Dow has Worst Week of the Year on Rate Hike Fears

It looks like the market had a delayed reaction to the Fed’s modestly-hawkish announcement earlier this week, as stocks had a more than 1% drop a couple days later than expected. The market was also down for the full week while investors come to terms with rising inflation and uncertainty over the central bank's next move.

On Wednesday, the Fed raised its inflation projection and said that rates will likely be hiked a couple times in 2023, instead of 2024. Despite all the skittishness around potential policy changes, the market handled it pretty well with only trivial losses. So maybe investors are finally coming around to the idea that rising inflation isn’t a big deal.

Or maybe not.

Stocks had their worst selloff of the month on Friday, led by the Dow’s decline of 1.58% (or approximately 533 points) to 33,290.08. The index now has a five-day losing streak and was down 3.6% for the week after recovery stocks came under pressure amid rising inflation and a resurgence of tech.

The S&P was off 1.31% to 4166.45 and the NASDAQ dipped 0.92% (or around 130 points) to 14,030.38. These indices were at all-time highs as recently as this past Monday, but finished the week lower by 1.9% and 0.3%, respectively.

The selloff got some help today though. St. Louis Federal Reserve President James Bullard told CNBC that there could be an interest rate increase as soon as next year. Skeptical investors can’t help but feel that a hike is inching closer and closer, just as they feared. Meanwhile, today was quadruple witching, which agitates volatility as stock index futures, stock index options, stock options and single stock futures expire.

We’re also just a day removed from a disappointing jobless claims result, which snapped six weeks of improvements. There were 412,000 claims last week, which was more than expectations and the previous week’s 375K.

Today's Portfolio Highlights:

ETF Investor: The portfolio is swapping a position on Friday, but it’s staying within the hot biotech space. Neena decided to sell iShares Nasdaq Biotechnology ETF (IBB) for a nearly 29% profit and replace it with Invesco Nasdaq Biotechnology ETF (IBBQ). Both of these funds are market-cap weighted indices with similar exposures to biotech giants like Amgen (NASDAQ:AMGN), Gilead (NASDAQ:GILD), Moderna (NASDAQ:MRNA) and Biogen (NASDAQ:BIIB). However, IBBQ is the new kid in town (debuted last week) that has no fee and will charge only 19 basis points after December 17. In other words, the service gets the same exposure at a cheaper price. Neena suggests using a limit order. Read the full write-up for more specifics on this change.

Counterstrike: With the market feeling weak outside of individual tech names, Jeremy thought this was a good time to sell some of Shopify (NYSE:SHOP) after the cloud-based commerce platform hit its targets. The editor sold half of SHOP on Friday for a 26.8% return in a month.

Home Run Investor: Shares of Smith & Wesson Brands (SWBI) jumped 17.2% today to become the best performer among all ZU names. The firearms company just reported a solid fiscal fourth quarter, which included a positive earnings surprise of nearly 60% and sales of $322.9 million that improved more than 67% year over year. The stock is now up more than 16% in the portfolio since being added on May 26. This portfolio also had a top performer over the past 30 days with Cutera (NASDAQ:CUTR, +45.9%).

Value Investor: "Eventually, the incredible rally off the November 2020 vaccine news was going to end. There was going to be a pullback, sell-off or even correction. We've already seen one of those in the last year.

"But now that the Fed is talking about the taper, we could see another one here. There's simply too much uncertainty right now.

"Volatility is back.

"I hope you have some money on the sidelines to deploy to get those stock deals. Don't be afraid of stocks going on sale. We saw it with the growth stocks a few weeks ago and there were some great deals in our portfolio." -- Tracey Ryniec

Have a Great Weekend!
Jim Giaquinto