S&P 500 falls below 200 DMA for the first time since June 2020, approaches 4.40

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  • US stocks continued to fall on Friday after negative subscriber guidance from Netflix, whose shares fell more than 20%.
  • The S&P 500 fell another 1.6% to 4,400 after failing to test 4,500 earlier in the session.
  • The index is now down 5.4% on the week and has broken below its 200 DMA for the first time since June 2020.

US stock markets continued to slide on Friday as negative earnings from tech giant Netflix weighed on sentiment and its competitors. NFLX shares fell more than 20% on Friday after the company on Thursday issued significantly worse-than-expected guidance for subscriber growth in the first quarter of 2022. That weighed on other high-earnings-to-value stocks ( or so-called “growth” stocks) that are concentrated in the tech sector, though it also weighed on the market more broadly. The S&P 500 fell 1.5% towards 4,400 after failing to test the 4,500 level again earlier in the session. The index is on track to end this week 5.4% lower and about 8.5% below all-time highs reached earlier in the year above 4,800. With the index on Friday breaking below its 200-day moving average (at 4,429) for the first time since June 2020, S&P 500 bears will now be eyeing a test of Q4 2021 lows in the 4,300 area. .

Meanwhile, the Nasdaq 100 fell another 2.4% to move below 14,500, having long since abandoned the 200 DMA just above 15,000. That means the index is now down more than 7.0% for the week and is now down 13.5% compared to its November all-time high near 16,800. Meanwhile, the Dow Jones was down 1.2% to below 34,300, taking losses for the week to around 4.5%. The comparatively lower-growth stock-weighted Dow is down just over 7.0% from all-time highs it reached in the first week of 2022 near 37,000. The Dow was hit on Friday by the slide in the Disney index, amid fears the company is issuing subscriber growth forecasts for the first quarter of 2022 that are as bleak as Netflix’s.

In terms of the S&P 500 GICS sectors, Communication Services (which includes Netflix) was the worst performer, down 3.5%, closely followed by the Consumer Discretionary and Materials sectors, down 3.0% and 2.5% each. Amid risk aversion in equity markets, energy prices fell, hurting the energy sector, which fell 2.3%, while lower US bond yields (as a result of the safe haven offer insurance) hurt the financial sector, which fell 2.2%. Information technology was down 1.6%, healthcare was down 1.1%, and manufacturing was down 0.9%. Lower yields helped the real estate sector hold its own, with the sector down just 0.2% on the day. Meanwhile, the classically defensive Utilities and Consumer Staples sectors fell 0.2% and rose 0.1%, respectively.

Investors fear further disappointing earnings could lead to further selling pressure across the board in US equities next week. Apple, Tesla and Microsoft are the biggest names to report. Regardless, Wednesday’s Fed meeting will be the biggest event, with traders keen to judge the tone of the meeting for signs of how fast the bank could raise rates in years to come. Some analysts have pointed out that if stocks continue to sell aggressively, this could eventually dissuade Fed policymakers from raising so aggressively, as market declines have forced the Fed’s hand before (in late 2018 or early 2019). But amid much higher inflation than then, the “line in the sand” in terms of stock market decline will be higher than in the past. In other words, where a 10% drop in the S&P 500 might have caused Fed concern in the past, given current inflation, a drop of close to 20% or more might be needed to get the central bank’s attention.

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