Cramer said, “The damage that’s happening to the markets is totally masked by the banks, which make the Dow Jones average so good,” in comparison with the Nasdaq and the S&P 500, which have more Big Tech exposure. The Dow is solely measured by the average price changes of its 30 stocks and counts four major financial companies among its few members (Goldman Sachs, JPMorgan Chase, Traveler’s and American Express. Visa is also in the average but that stock is more reliant on consumer economic activity than rates.)
The S&P 500 and Nasdaq on Monday extended their losing streaks to five straight sessions, dropping as much as roughly 2% and more than 2.5%, respectively. The Nasdaq lost 4.5% last week. The S&P 500 dropped almost 2% last week.
As Cramer pointed out, the Dow has recently fared better, losing just 0.3% last week. However, the blue-chip average fell more than 500 points, or almost 1.5%, at one stage on Monday, weighed down by losses in Nike and Visa. The Dow and S&P 500 both hit record closing highs early last week, before increases in the 10-year Treasury yield cast a pall over stocks.
Stocks in general — but especially growth stocks, many of which are tech stocks — are not worth as much in a rising rate environment. However, the banks make more money when rates are higher, which has been driving gains in 2022.
“I find that this market is treacherous. We need some stabilization in mega-tech. And we’ve not,” Cramer said on “Squawk on the Street.”
The S&P 500 Information Technology index, made up of some of the biggest names in Silicon Valley, has dropped roughly 7% so far this year, according to FactSet. Over the same period, the S&P 500 Financials index has gained about 4% year-to-date. All of the S&P 500 sectors fell Monday. Financials and energy had been in the green shortly after the open before reversing lower.
Tech stocks on Monday won’t get any help from the 10-year yield, which again topped 1.8%, levels not seen since January 2020. The rapid rise in rates reflects the expectations of the monetary tightening measures underway or in the works by the Federal Reserve. Investors are dumping tech shares as rates rise on the notion that their future earnings are now worth less, making it harder to justify the group’s high valuations.
Goldman Sachs expects the Fed to hike interest rates from near-zero levels four times this year as inflation rises and the nation’s unemployment rate drops. In minutes from its December meeting, out last week, the Fed revealed talk about a balance sheet reduction in addition to signaling rate increases and confirming an accelerating tapering.
Investors this week hope to get more clarity from Fed Chairman Jerome Powell, when he testifies Tuesday at his nomination hearing before a Senate panel. Consumer and wholesale inflation reports are out Wednesday and Thursday. Earnings season also begins this week, with quarterly results Thursday and JPMorgan Chase, Citigroup and Wells Fargo on Friday.
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