S&P 500 Stock Index Off To Its Worst Start Since 2016

A week into the new trading year, and the benchmark S&P 500 stock index is off to its worst start since 2016 amid concerns that the U.S. Federal Reserve (Fed) will raise interest rates faster than investors had expected.

After a record close for the S&P 500 last Monday (January 3), declines in megacap names such as Tesla (TSLA), Nvidia (NVDA) and Alphabet (GOOGL) left the benchmark index down 1.9% last week. The tech-heavy Nasdaq 100 closed down more than 4% on the week.

A hawkish stance in minutes of Fed’s December meeting released mid-week fueled the selloff and a mixed hiring report did little to calm concerns about a rate hike as early as March of this year. Overnight index swaps are pricing in an 88% chance of an interest-rate hike in the spring.

Treasury yields have climbed across the board, with the five-year rate rising to pre-pandemic levels, topping 1.50%. The two-year rate pushed above 0.90%, heading for its biggest weekly spike since October 2019. The benchmark 10-year yield surpassed the 2021 high, to just shy of 1.80%.

While high-growth technology names took the brunt of last week’s selloff, value stocks have benefited as hedge funds load up on those securities and dump expensive names, helping fuel the sharpest stock rotation since March 2021.

European stock markets also fell last week. Inflation in the Euro zone jumped 5% from a year earlier in December, adding pressure on the European Central Bank (ECB) to join a growing number of central banks from the U.S. Fed to the Bank of England that are tightening monetary policy.