President’s Day: More Whipsawing Away
The S&P 500 ended -1.52% lower despite FOMC meeting minutes suggesting potential flexibility on the pace of policy tightening. Global equities fell last week as investors moved into safer assets amid rising tensions between Russia and Ukraine. European equities dropped more than domestic USA ending the week down about -1.80% on geopolitical concerns. Consumer staple stocks (beverages, snacks) was the only green sector. Europe’s benchmark Stoxx 600 index is down about 5.8% this year, while the S&P 500 has fallen about -8.8%. European indexes are weighted heavier to “value” factors.
Oil prices were volatile last week but ended lower. They rose to their highest levels since 2014 before settling down on the week. Gold prices rose 3.13% and topped $1900 per ounce for the first time in eight months as demand for safe havens increased. Gold is not an inflation hedge, but a safety asset and a relative currency depreciation hedge.
On Presidents Day, with the cash markets closed, overnight traders had S&P 500 futures up +1% on rumors of a Biden/Putin summit this week. Futures turned down on Russia denying such a meeting has been planned. Such is the life of a “day trader” trading S&P500 futures contracts in illiquid overnight sessions. Our team views these gyrations as short-term noise to your overall portfolio and long-term financial plan.
According to Goldman Sachs, US earnings results for the Q4 2021 outpaced consensus estimates with 84% of companies having reported, 52% have beaten earnings estimates by more than one standard deviation. This rate is above the historical average of 47%. Earnings growth should continue to normalize, but stay supportive of valuations, and deliver 8-10% EPS growth for 2022.
It’s important to note that initial rate hikes are early-cycle policy moves and stocks have historically made new all-time 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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