Although both the consumer price index and producer price index reports came in at the highest levels in decades, there was little immediate market reaction. But after a period of digestion, computer algorithms went into action, and more aggressive rotational action churned. This is the third time in the first two weeks of 2022 that the market has been hit hard by this sort of action.
Once again, it was the big-cap technology and growth names that were hit the hardest. The FATMAAN stocks that could do no wrong and lead the indexes to a steady diet of new highs in 2021 were the hardest hit today, but the problem is that when money rotates out of these stocks, it does quite a bit of collateral damage in other groups like biotechnology and small caps.
The beneficiary of this rotation are names like Boeing (BA) , Caterpillar (CAT) , Walmart (WMT) , Dow (DOW) , and IBM (IBM) . Financials, oil, and commodities benefit from inflation, while stocks with earnings far in the future suffer the most.
Friday several big banks report, and fourth-quarter earnings season will start. There is no way to know if or when more rotational action will be triggered by the focus on earnings should help to put some focus on fundamentals again.
This is an extremely difficult market, and it is frustrating and annoying, but in the words of Hyman Roth in Godfather II, "this is the business we have chosen."