Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Analysis-Buy the bounce? Investors watch valuations, technical levels to decide

Stock MarketsJan 12, 2022 03:05AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: A trader watches his chart while working on the floor of the New York Stock Exchange July 8, 2014. REUTERS/Brendan McDermid/File Photo

By David Randall

NEW YORK (Reuters) - As stocks attempt to climb back from a brutal sell-off, investors are watching a variety of metrics to decide whether to buy the rally or brace for more declines.

The tech-heavy Nasdaq Composite Index closed up 1.4% on Tuesday, a day after falling more than 10% from its Nov. 19 record close during intraday trading before rallying at the end of the session.

Yields on the benchmark 10-year U.S. Treasury have risen by 20 basis points this month in anticipation of a more hawkish Federal Reserve and stand near their highest level since January 2020. Growth and tech stocks can be particularly sensitive to higher yields as they threaten to erode the value of future cash flows.

"We are entering a period where you will see really dramatic leadership shifts and volatility" in the equity market as the Fed prepares to raise rates, said Liz Ann Sonders, chief investment strategist at Charles Schwab (NYSE:SCHW).

A look at historical valuations shows there may be more downside ahead for tech and growth stocks.

The price-to-earnings multiple of growth companies stands 15 points higher than that of so-called value stocks, compared to a long-term average of six points, wrote Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management, in a recent report.

The Russell 1000 Growth index is down 3.8% year-to-date, while the Russell 100 Value which tracks the shares of banks, energy firms and other comparatively cheap, economically sensitive stocks, is up 1.4%.

UBS expects the broad market to rise, with a year-end price target of 5100 on the S&P 500, some 8.2% above where it closed Tuesday.

Still, “investors will have to be nimble in 2022, and be aware of any outsize exposure they may have to growth stocks,” Marcelli wrote.

Others are less bullish. Analysts at BofA Global Research said the nearly 2% decline that the S&P 500 experienced in the first five trading days of January bodes ill for its performance for the rest of the year.

The S&P 500 finishes the year higher nearly 75% of the time, delivering an average return of around 11%, when the first five trading sessions of the year are up.

When the first five sessions are down, the year is up just 52% of the time, with an average return of 1.77%, BoFA’a analysts said in a report. The S&P 500 - where tech-focused stocks have a heavy weighting - rose nearly 27% in 2021 and is down 1.1% so far this year.

Analysts at Cantor Fitzgerald, meanwhile, warned that a “significant sell-off is coming,” in the face of a more hawkish Fed, calling for a pullback of 10% or more by the end of February.

Alarming signs include a sharp rise in global bond yields that has dulled the attractiveness of equities and an 80% jump in margin debt among individual investors over the past two years, they said in a recent note.

“Equity exposure is at historic highs which means that an equity drawdown will overshoot to the downside,” wrote Eric Johnston, the firm’s head of equity derivatives and cross asset.

Analysts at Bespoke Investment Group are watching technical levels. They noted that the QQQ exchange traded fund, which tracks the Nasdaq 100, closed in “extreme oversold” territory on Friday, a sign that the index could hit a short-term bottom. Since 1999, the Nasdaq 100 has gained 4.9% in the six months following an "extreme oversold" reading, according to Bespoke.

Jim Paulsen, chief investment officer at the Leuthold Group, believes expected strong earnings over the next two quarters are likely to make any market sell-off short-lived

"Whether a correction is happening now or later this year, it will probably be met by solid company fundamentals," he said.

Analysis-Buy the bounce? Investors watch valuations, technical levels to decide

Related Articles

Telecoms group Telia delivers upbeat growth forecast
Telecoms group Telia delivers upbeat growth forecast By Reuters - Jan 28, 2022

By Supantha Mukherjee STOCKHOLM (Reuters) -Nordic telecoms operator Telia gave an upbeat growth forecast on Friday as it reported better than expected quarterly core earnings,...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Xoli Ncube
Xoli Ncube Jan 12, 2022 1:26AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thank you soo much
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email