Indices in 2022 – what should you look out for?
Stock markets around the world have been wobbly since the start of 2022, even though January was a positive month, from a seasonal point of view. However, as investors and traders rushed out of stocks, fearing inflation and interest rate hikes, greater attention is now being given to stock market indices. Viewed as a barometer for the overall performance, here are some of the top-traded names to watch this year.
Alt-text: stock market indices in 2022
For over a decade now, growth stocks have been attractive for market participants. Persistently-low rates, combined with technological prospects, have acted as a tailwind for businesses such as Google, Facebook, Microsoft, and Apple. According to analysts at Trustpac, the tide is turning now, as Nasdaq100 dropped more than 15% to start the year.
This shows there is a lack of interest in tech names, which might keep the index subdued for the short term. The market is sensitive to how Treasury yields are performing, which is why a top in 10Ys could be a strong enough reason for the tech flows to turn positive again.
NQ100 found support near the highs made back in April 2021, while a break below could open more downside towards 13,500 or even 13,000. Despite the negative narrative in the media, traders should consider the approximately $1 trillion in stock buybacks announced for this year, which can keep the downside limited.
Another important index that happens to be available for trading with Trustpac and other major brokerages, is DAX40. The German benchmark manages to remain resilient to the selloff seen in the USA, which is why it trades only 800 points below the all-time high currently.
That’s the case also because the index constituents are cyclical names, which tend to perform well in an environment dominated by high inflation and high interest rates. Risks to the downside should not be ruled out, particularly the slowdown in global economic growth.
Alt-text: global economic activity in 2022
Forecasts for 2022 have been revised lower recently, which is a headwind for Germany as one of the biggest exporting nations. However, as long as the DAX continues to trade above 14,800, it remains in a structurally bullish environment.
The most popular stock market index remains the S&P 500. Since it integrates some of the largest publicly-listed companies today, ranging from 11 different sectors, it offers investors and traders a broad view of the risk appetite.
Considering large-cap tech names weigh heavily on the index, market participants should account for how the technology sector performs moving forward. Just like with the Nasdaq, it was under heavy pressure recently, as some air got out of the highly-inflated tech stocks, but technically speaking, it has not entered a bear market yet.
Overall, financial markets are pricing in a significant change in monetary policy, across developed and emerging economies. The focus has shifted towards inflation, even if that means hurting asset prices in the short term. It is yet to be seen whether central banks will deliver, or choose to stay behind the curve, to keep solvency risks low.