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How the Nasdaq 100 stealth correction slammed markets in 2022

Stocks are off to an inauspicious start in 2022 — the worst start to January in the Dow (^DJI), Nasdaq Composite (^IXIC) and S&P 500 (^GSPC) since 2016. Despite a rally on the first trading day in January — as Apple became a $3 trillion company — the Nasdaq was already in stealth correction mode. Currently, 40% of its components have lost more than half of their value since their 2021 peak.

U.S. government bond yields (^FVX, ^TNX, ^TYX) are surging the most to start the year since 2003, which is having spillover effects in the equities. Pandemic-era growth names are getting slammed as new year money flows favor value sectors like financials and energy. These sectors respond positively to a steepening and rising yield curve while growth and momentum names flag.

Peering inside the Nasdaq 100, 39 stocks are down 20% or more from their 52-week peaks. The biggest plunges are in Peloton (PTON) — down a cool 80% from its record high one year ago — and Pinduoduo (PDD), shedding 73%. Notably, another early pandemic favorite, Zoom (ZM), is down 62%.

[Click the sectors in the above chart to reveal sector performance.]

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The stocks holding up the best from recent highs are safer low-growth names like consumer staples company Pepsico (PEP), utilities company Exelon (EXC), legacy tech company Cisco (CSCO) and railroad firm CSX Corp (CSX).

But the top returning stock of 2022 happens to be last year's winner, EV-maker Lucid Motors (LCID) — up 280% in 2021 and up another 10% in the first six trading days this year. Other notable recent winners include the chipmaker Intel (INTC), up 7% in 2022, truck maker Paccar (PCAR), up 5%, and food manufacturer KHC (KHC), up 4%.

But despite the carnage this year, growth stocks caught a bid Monday afternoon, with signs of life picking up even in the battered-down components of the ARK Innovation ETF (ARKK). Unity Software (U) is up 9.5% this week after falling 37% from its recent high. Similarly, Crispr Therapeutics (CRSP), Teledoc (TDOC) and UiPath (PATH) are each up 6% or more.

ARK Innovation ETF Top Components — 2-Day Returns
ARK Innovation ETF Top Components — 2-Day Returns

Focus turned to Federal Reserve Chair Powell, who took center stage Tuesday before the Senate. After a few jitters surrounding hawkish inflation talk, risk markets turned positive with the major indices erasing early losses. As of noon ET Tuesday, the Nasdaq was leading the way higher, up 1.3%.

JPMorgan analyst Dr. Marko Kolanovic made a bullish call Monday in a note to clients. He's advising them to buy the dip, reasoning the Fed-induced sell-off appears overdone. "Higher bond yields should not be disruptive for equities, but rather support our call for a growth to value rotation," he said, adding "we stay bullish."

Jared Blikre is an anchor and reporter focused on the markets on Yahoo Finance Live. Follow him @SPYJared. Devan Burris is a producer for Yahoo Finance Live.

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