3 things to watch in the stock market next week
Bearish sentiment could persist as Fed rate hikes loom and Russia-Ukraine tensions mount. Also worth watching: developments in the housing market and whether Bitcoin’s downtrend will continue.
Stocks continue to suffer as US indexes head for their second-straight losing week. Since Monday, the Nasdaq Composite has shed 211 points, or 1.53%. The S&P 500 has fallen 1.32%, while the Dow Jones Industrial Average has dropped 1.62%.
Markets tumbled late in the week after the minutes from the Federal Open Market Committee’s January meeting showed the Fed was ready to start raising rates soon. Stocks also struggled this week as investors remain jittery about the ongoing tensions between Russia and Ukraine.
Bearish sentiment could linger next week as inflation soars and international tensions escalate. Pressure between Russia and the West intensified on Friday as Moscow said it planned to hold nuclear exercises to test ballistic and cruise missiles. President Biden spoke from the White House on Friday at 4 p.m. ET, right as the stock market closed, about the ongoing Ukraine crisis.
US markets are closed Monday for Presidents’ Day, so we’ll have to wait until Tuesday to see what effect, if any, new developments have on the market.
Here are three things worth watching in the markets in the week ahead
1. A further market sell-off to open bargain buy opportunities
The prospect of a Russian invasion of Ukraine and rising interest rates have triggered a sweeping sell-off in growth stocks. Generally speaking, rising interest rates can influence tech and other stocks with high valuations based on the expectation that their best earnings are in the future. The sell-off in growth stocks whose futures still look bright creates an opportunity for long-term investors.
For instance, PayPal (PYPL) stock currently trades at 66% below its all-time high. PayPal is one of the largest online payment processing services and is still a massive growth opportunity. It boasts a consistent track record of earnings and sales growth and, despite its recent mixed earnings, analysts remain largely bullish on the stock. It’s now trading at around $104.43, and analysts think it can reach $186.80 over the next 12 months.
Novice investors may instead start with index funds. Growth index funds like the iShares Russell Top 200 Growth ETF (IWY) and the Vanguard Mega Cap Growth Index Fund ETF (MGK) trade at 14.54% and 15.44%, respectively, below their all-time highs.
Stocks you’ve wanted to buy that haven’t fundamentally changed may be a little cheaper than the market retreats, so look out for bargain buys.
2. Insights into the housing market
The housing market will be of interest next week, with the Case-Shiller/S&P Home Price Index for January slated for release on Tuesday. This index tracks the changes in the sale prices of residential real estate across the US. Home prices have risen dramatically since the onset of the pandemic, driven by homebuyers looking to take advantage of low mortgage rates and a pandemic-induced lumber shortage that’s driven up the price of building materials for new home construction.
Earnings season continues next week, and we’ll see the financials of several companies that are tied to the red-hot housing market. Keep an eye on these homebuilding and housing stocks:
- Home Depot (HD). Scheduled for Tuesday. Keep a close eye on consumer trends and whether home improvement spending is staying strong.
- Lowe’s Companies (LOW). Scheduled for Wednesday. Look for Lowe’s to continue its streak of beating earnings estimates, and pay attention to management’s expectations for 2022.
- Toll Brothers (TOL). Scheduled for Wednesday. Home sales of this luxury homebuilding company are expected to have increased in the first quarter of fiscal year 2022 from the same quarter last year.
3. If Bitcoin will succumb to the pressure and drop below the $40K mark
After dropping below the $33K mark in January, Bitcoin (BTC) is once again under pressure as it continues to test support at the $40K level. Bitcoin price has been increasingly moving in correlation with the stock market since the onset of COVID-19. Like stocks, the crypto market has been rattled by the Fed and global tensions. Bitcoin fell through $40,000 on Friday, its lowest in two weeks. It’s trading 42% off its all-time high of $68,990.90, which it set in November, according to data from CoinDesk. The coin appears to still be in a downtrend, which means the next level of support should be somewhere around the $35K to $37K range.
At the time of publication, Matt Miczulski owned BTC.
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