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(Reuters) – U.S. shares were set to open lower on Monday, with the tech-heavy Nasdaq on track for its worst start to the year as investors shied away from stocks with lofty valuations amid aggressive rate hike bets and geopolitical tensions.
Valuations of growth and technology stocks, the star performers of 2021, have come under increasing scrutiny, with the Nasdaq declining 12% so far this month, as of Friday.
“The January barometer, which states ‘as goes January, so goes the year’, will be negative, implying investors are in for a challenging year,” Sam Stovall, chief investment strategist at CFRA Research, said.
“This year will be a tale of two halves, the first half will see some pressure and the second half could see some easing.”
The U.S. Federal Reserve last week signaled it intends to combat the four-decade high inflation by hiking key interest rates more aggressively than many market participants expected.
Fed funds futures traders are pricing in almost five rate increases by year-end, with some banks, such as the Bank of America (NYSE:BAC) now eyeing seven hikes this year.
Geopolitical tensions have added to market uncertainty, with the U.S. threatening Russia with new economic sanctions if it attacks Ukraine.
At 8:31 a.m. ET, Dow e-minis were down 178 points, or 0.51%, S&P 500 e-minis were down 17.25 points, or 0.39%, and Nasdaq 100 e-minis were down 1 points, or 0.01%.
The percentage of individual investors with a bearish outlook, or expectations that stock prices will fall over the next six months, hit a 9-year high in the latest American Association of Individual Investors Sentiment Survey.
The bellwether S&P 500 has fallen 7% so far this month and is on track to report its worst month since the pandemic-led crash in March 2020.
A steep drop in stocks has investors gauging equity valuations to determine whether now is the time to bargain hunt, with some eyeing results that could bolster the case for investors looking to buy at a discount.
The fourth-quarter earnings season continues with Google parent Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN) and Meta Platforms expected to report later this week, following strong results from Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) this month.
As of Friday, a third of S&P 500 companies have posted earnings, and 77.4% of them reported above analyst expectations, according to Refinitiv.
Tesla (NASDAQ:TSLA) rose 1.2% premarket after Credit Suisse (SIX:CSGN) raised its rating on the company’s stock to “outperform”, while plant-based patty maker Beyond Meat (NASDAQ:BYND) rose 4.8% after Barclays (LON:BARC) upgraded the stock to “overweight”.
