LiveWire

After multi-year stellar performance, the Nasdaq 100 is displaying significant signs of weakness in early 2022. After failing to make new high, the index reversed gains and now stands at an important support level of USD15'500. The index could be due for a bounce after reaching oversold levels. The Nasdaq has been able to hold well thanks to the higher weighting of the FANGs stocks, which are only down in the mid single digits. However, further weakness from these mega caps could cause the index to break its upward trendline. Additionally, more than 40% of the Nasdaq components are down 50% or more from their highs, a level not seen since March 2020. Performance of the S&P 500, the Nasdaq, and the Dow Jones are +0.17%, +1.59%, and -3.05% respectively since the December FOMC meeting.  

US Non-farm payrolls increased 199’000 versus consensus of 422’000 expected in December. The jobs report is mixed with US non-farm payrolls weaker than expected but the unemployment rate slumped to 3.9% (consensus was 4.1%). This is the first job report since variant Omicron has taken the US by storm. The report comes at a critical time as investors are reassessing how to price assets in an environment of rising interest rates. Odds of hike as soon as March are moving higher to a 90% chance. Overall, it doesn’t change the Fed outlook yet. More data is needed, and next week will be key, with US CPI in focus on Wednesday.

Rising inflation pressures and earlier liftoff on interest rates are pushing market  out of growth to more economic-sensitive value stocks. One sector that is well-positioned to benefit from this rotation is the S&P 500 energy sector which made two consecutive +3% daily gains earlier this week. This morning the energy sector is up 1.8% pre-market, while S&P 500 futures is flat (-0.02%). An alternative to XLE  (capital-weighted) is XOP (equal-weighted). XOP tends to track the broader sector.  Historically value stocks tend to outperform their peer growth when perspectives of economic growth are positive and breakeven inflation is above 2%.

The S&P financials kicking 2022 on the right foot. The second strongest sector outperforming the overall market since the beginning of the year, financials have historically benefited from rising yield environment. With Chair Powell's hawkish shift, and strong economic growth expected by the market, 2022 is very likely to see the 10-year Treasuries yield rise. Currently, market participant are betting heavily on rising yields with the call-to-put ratio on XLF at 2.5X, according to CNBC

Taiwan Semiconductor Manufacturing Company is starting the year strong as investors are building their portfolios. The stock broke its 1st year-long resistance level around USD125.5 to close on Tuesday at USD133.4, up 10%  YTD, backed by high volume.

Rapid changes in the automotive, health and computing industry have raised world demand for advanced chips to a level that the current supply cannot meet, leading to global chip shortages which have caused prices to soar. TSMC as the largest semi producer in the world is well positioned to capitalize on the back of these strong fundamentals. Analysts expect the company to further grow sales and EPS by 19.5% and 19.6% respectively in 2022. The average consensus price target for TSMC is USD146.4, according to the WSJ.