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Inventory futures rise after the S&P 500's worst week since March 2020

Traders on the NYSE floor, January 21, 2022.

CNBC

After the S&P 500's worst week since March 2020, stock futures rose modestly in Sunday night trading as investors waited for more corporate earnings and a key policy decision from the Federal Reserve.

Futures on the Dow Jones Industrial Average rose 120 points. S&P 500 futures were up 0.5% and Nasdaq 100 futures were up 0.9%.

The overnight action followed a brutal week on Wall Street amid mixed corporate earnings and concerns about rising interest rates. The S&P 500 lost 5.7% last week to close below its 200-day moving average, a key technical level, for the first time since June 2020. The blue-chip Dow fell 4.6% in its worst week since October 2020.

The sell-off in the tech-heavy Nasdaq Composite was even more severe as the benchmark fell 7.6% last week, posting its fourth consecutive weekly loss. The index is now more than 14% below its record close in November, falling deeper into correction territory.

The reporting season in the fourth quarter was mixed. While more than 70% of S&P 500 companies have reported results that beat Wall Street estimates, a few key companies disappointed investors last week, including Goldman Sachs and Netflix.

"What was originally a stimulus-withdrawal decline turned into earnings volatility last week," Adam Crisafulli, founder of Vital Knowledge, said in a note. "As a result, investors are now worried not only about the multiples of earnings, but also about the EPS projections themselves."

IBM will report numbers after Bell Monday. Investors will also digest a range of high-stakes earnings from big tech, including Microsoft, Tesla and Apple.

Another key market driver will be the Fed's monetary policy meeting, which concludes on Wednesday. Investors are eager for signals on how much the central bank will hike rates this year and when it will start doing so.

Goldman Sachs said on Sunday that its baseline forecast calls for four rate hikes this year, but the bank sees a risk of more rate hikes amid rising inflation.

Investors are shedding riskier assets this year as they brace for the Fed to tighten monetary policy. Bitcoin fell more than 8% over the weekend to around $35,511 apiece, erasing almost half of its value from its record high set in November.

Meanwhile, bond yields have soared into the new year in anticipation of Fed rate hikes, in part sparking the sharp sell-off in growth-oriented tech stocks. While the 10-year Treasury yield closed about 1.76% lower last week, the federal funds rate is up about a quarter of a point in 2022.

"The big story in 2022 so far has been the rapid rise in interest rates, prompting investors to reassess valuations for some of the most expensive segments of the market and switch into value stocks," said David Lefkowitz, Head of Equities Americas at UBS Global Wealth Management.

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