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Market Snapshot

https://www.briefing.com/stock-market-update

Dow 36407.11 -392.54 (-1.07%)
Nasdaq 15100.17 -522.54 (-3.34%)
SP 500 4700.58 -92.96 (-1.94%)
10-yr Note 0/32 1.651
NYSE Adv 583 Dec 2682 Vol 1.0 bln
Nasdaq Adv 978 Dec 3456 Vol 5.0 bln

Industry Watch
Strong: Energy, Materials, Utilities, Consumer Staples
Weak: Real Estate, Information Technology, Communication Services, Consumer Discretionary

Moving the Market

-- Market sells off following release of FOMC Minutes, which highlighted a more aggressive stance on policy normalization

-- Growth stocks extended intraday losses while value stocks gave up intraday gains

-- 10-yr yield tops 1.70%

-- December ADP Employment Change report was stronger than expected

FOMC Minutes catalyzes sell-off in broader market
05-Jan-22 16:20 ET
Dow -392.54 at 36407.11, Nasdaq -522.54 at 15100.17, S&P -92.96 at 4700.58

[BRIEFING.COM] A mixed market turned into a weak market on Wednesday after the FOMC Minutes highlighted a more aggressive stance on policy normalization. The Nasdaq Composite and Russell 2000 both dropped 3.3%, the S&P 500 dropped 1.9%, and the Dow Jones Industrial Average dropped 1.1% after setting an all-time high in early action.

Briefly, the Minutes from the December meeting showed that participants thought it would be appropriate to reduce the size of the Fed's balance sheet at a faster pace than during the previous normalization period. Cited reasons included the fact that the balance sheet is bigger this time around and that the economic outlook is stronger.

What's more, the participants judged that the commencement of a balance sheet runoff would likely be closer to after the first rate hike, versus waiting nearly two years after the first hike in the last normalization episode.

Growth stocks extended intraday losses, as the 10-yr yield topped 1.70% in the wake of the report, while value stocks gave up intraday gains. All 11 S&P 500 sectors closed lower, with real estate (-3.2%), information technology (-3.1%), and communication services (-2.9%) each falling about 3.0%.

The consumer staples (-0.03%), utilities (-0.1%), energy (-0.1%), and materials (-0.1%) sectors closed fractionally lower amid increased selling pressure into the close.

The market might have been caught off guard by the Fed's hawkish tone regarding the balance sheet, but the readiness to hike rates shouldn't come as a surprise. According to the CME FedWatch Tool, the probability for a rate hike in March increased to 67.8% today, versus 59.7% yesterday and 27.1% one month ago.

Rate-hike expectations firmed up today after the release of a stronger-than-expected December ADP Employment Change report, which estimated an addition of 807,000 jobs to private sector payrolls last month (Briefing.com consensus 425,000).

The 2-yr yield, which tracks expectations for the fed funds rate, rose seven basis points to 0.83%. The 10-yr yield settled the session four basis points higher at 1.71%, feeding into expectations for a run-up to 2.00%. The U.S. Dollar Index decreased 0.1% to 96.20. WTI crude futures rose 1.1%, or $0.82, to $77.82/bbl.

All in all, the balance-sheet commentary, coupled with higher interest rates, was presumably an excuse for investors to double down on the growth-stock selling and take profits in the value stocks.

Reviewing Wednesday's economic data:

ADP estimated that 807,000 jobs were added to private sector payrolls in December (Briefing.com consensus 425,000), up from a downwardly revised 505,000 (from 534,000) in November.
The preliminary IHS Markit Services PMI for December decreased to 57.6 from 58.0 in the final reading for November.
The MBA Mortgage Applications Index decreased 5.6% on a weekly basis.
Crude oil inventories had a weekly draw of 2.144 mln barrels, which was the EIA's sixth draw in six weeks.

Looking ahead, investors will receive the ISM Non-Manufacturing Index for December, the weekly Initial and Continuing Claims report, the Trade Balance for November, and Factory Orders for November on Thursday.

Dow Jones Industrial Average +0.2% YTD
S&P 500 -1.4% YTD
Russell 2000 -2.3% YTD
Nasdaq Composite -3.5% YTD

Crude futures settle higher while stocks struggle
05-Jan-22 15:30 ET
Dow -274.74 at 36524.91, Nasdaq -459.72 at 15162.99, S&P -74.30 at 4719.24

[BRIEFING.COM] The S&P 500 is trading at session lows with a 1.5% decline amid losses in seven of its 11 sectors.

The real estate sector (-3.1%) is the weakest performer, but the biggest drags are the information technology (-2.6%), communication services (-2.2%), and consumer discretionary (-2.3%) sectors. The energy (+0.2%), materials (+0.3%), consumer staples (+0.2%), and utilities (+0.2%) sectors trade higher.

WTI crude futures settled higher by 1.1%, or $0.82, to $77.82/bbl.