Friday's Market Minute: Dip-Buying After Big Sell-Offs Is Alive And Well

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The combination of increasingly hawkish central banks and Russia’s invasion of Ukraine has been toxic for equity markets this year. Most everyone knows that oil and gasoline prices have been soaring, and this steady climb started well before the Russia-Ukraine conflict. Year to date, commodities have been winners, and they typically perform well late in the business cycle as well as during periods of global turmoil. They offer a potential hedge against inflation and thrive in an environment of disruption.

In the decade since the global financial crisis, low inflation persisted, and commodities performed poorly. Over the past year, pandemic-induced supply shortages and demand spikes have driven inflation higher, which is reflected in commodities. Yesterday’s inflation report showed widespread pricing pressures even before the full impact of the global shock from the Russian conflict. With inflation nearly four times the U.S. central bank's 2% target, Wall Street strategists are expecting as many as seven rate hikes this year, with the first hike coming next week. 

Wednesday’s rally was more of a dip-buying opportunity due to oversold conditions, but the bears are still firmly in control of equities. The pain has been primarily focused on U.S. technology stocks. Despite a periodic tepid bounce, the Nasdaq Composite index has already fallen nearly 20% year to date. What we are seeing is a series of short-lived, hopeful rallies rather than a meaningful push higher built on solid foundations.

Interest rates have an almost mechanical impact on how many investors value growth stocks. The more distant a company’s profits, the greater the adverse impact of rising rates on valuations. Cyclical value-oriented names have held up considerably better than growth stocks, but have also nonetheless been susceptible to the demand for liquidity so far this year.

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This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.