STOCKS STRUGGLE WITH RATE HIKES AND OMICRON --STOCK INDEXES TEST 50-DAY AVERAGES --DEFENSIVE STOCK SECTORS HIT NEW RECORDS

STOCK INDEXES WEAKEN... Stock prices are ending a volatile week on the downside.    So far, no serious chart damage has been done as the three major stock indexes shown below are testing potential support at their 50-day moving averages.    Stocks are struggling with the spread of the omicron virus (and government steps to contain it) and a more hawkish Fed.   The Fed on Wednesday doubled the pace at which it is reducing its bond buying program (or tapering) which should end in March.  At least three rate hikes are expected to follow to combat surging inflation.  That combination has made stock investors more cautious.   One surprising development has been the drop in bond yields following the Fed message.   That's not likely to last given the fact that interest rates should start rising  in the coming year.  That could provide a much bigger headwind for stock prices.   Stock sectors were equally split during week as five rose while six declined.   The Nasdaq suffered the biggest drop as the threat of higher rates weighed on technology stocks.    Another sign of investor caution is the fact that defensive sectors have been hitting new records.

DEFENSIVE SECTORS HIT NEW RECORDS... The four top sectors for the week are healthcare, real estate, consumer staples, and utilities.   The four charts below show them all hitting new records.   All four sectors are defensive in nature which usually do better when investors turn more cautious on the market.

BANK STOCKS WEAKEN... Financials are Friday's weakest sector and banks in particular.   Chart 8 shows the S&P Regional Banking SPDR (KRE) falling back to its 200-day average.   Falling bond yields during the week may have contributed to bank weakness.   That could change for the better in the new year if and when bond yields start to climb.