US equities continue to slide, mega caps remain the biggest negative pull

Ed Mertiri |

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Last week’s downturn continued the US equity slide that has been in effect since the beginning of the year. Stocks are not being punished equally. Growth stocks, mainly the mega caps, have declined at about twice the rate of Value stocks YTD. Though all of the S&P 500 sectors ended the week in the red. Not surprising in a rising rate environment.

The S&P 500’s decline and leadership rotation is similar to last January’s pattern, though perhaps more extended. Investors should be prepared for sharp reversals in the coming weeks, particularly as Q4 earnings season ramps up and 2022 guidance is clarified.

The VIX (the fear index) jumped to 29.3, putting the VIX into a slightly negative range. A big change in sentiment when it started the year at just 17, well within the confidence range. Although it may feel otherwise, VIX levels year-to-date are well within the typical trading range.

While equities have started the year on the back foot, commodities have continued their 2021 bull run, the sole asset class to have experienced broad-based gains this year. Interest rates continue their rise. The US T-Note 10 Year broke above 1.8%, ending at 1.83%. The 10 year yield has returned to yields not seen since 2019. We might expect rates to return to 2019 levels sooner rather than later.

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