2022: Whipsawing Away
The markets continue their “whipsawing away” theme of first quarter 2022. The S&P500 fell -1.8% last week to stretch its correction to -7.9%. The technology heavy NASDAQ is down about -12% YTD. On a YTD basis, the S&P 500’s Energy sector (led by old line) has outperformed its other 10 sectors: Energy (+26.5%), Financials (2.5), Consumer Staples (-2.5), Industrials (-6.1), Utilities (-6.5), Materials (-7.3), S&P 500 (-7.3), Health Care (-7.6), Information Technology (-11.1), Consumer Discretionary (-11.6), Communication Services (-12.3), and Real Estate (-12.4)
Overnight traders had S&P 500 futures down -0.9% amid no breakthrough in weekend meetings between Western leaders and Russia’s president. Traffic is moving again across the Ambassador bridge after a week-long blockade, allowing automakers and other manufacturers to reclaim lost production. Oil prices are holding around $93 a barrel. The 10-year Treasury yield is steady at 1.92% after Friday’s big pullback left it barely changed on the week on fears that an invasion of Ukraine was imminent.
The price of oil jumped on Friday, when the US suspended consular services in Kyiv and ordered most embassy staff to depart after warning that a Russian military invasion could happen at any moment. Moscow also began withdrawing its diplomatic presence in Ukraine.
The U.S. CPI report for December turned up the debate about the Fed starting this tightening cycle with a 50-bp opener in March. Headline inflation jumped to 7.5% y/y, the strongest clip since 1982, while core inflation topped 6% y/y (also a 1982 comparable). The job market is tight, and wage demands likely to start pushing higher, however mask mandates are subsiding and employers are canceling Covid related sick pay for the unvaccinated which is likely to push people back into the workforce. The Fed knows it has catching up to do. Bonds have already done a lot of the Feds work by selling off in front of their actually short-term interest rate hikes.
If history is a guide, we should be probing for a low the next few weeks but still in for more whipsawing for months. It’s important to note that stocks have averaged growth six-months from Fed liftoff and have been positive after 12 months. The initial rate hike is an early-cycle policy move and then make new highs over the following 6–12-month period. Our team continues to expect whipsawing and rotating markets for more of the first half. Investor sentiment (a contrary indicator) is reaching bullish levels in both retail lack of bullishness, and institutional bearishness in the form of hedging and shorting.
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First Half 2022 Outlook – Curb Your Enthusiasm Yield a Bull Market Buy.
https://www.youtube.com/watch?v=Ybk6bjjkILQ
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