Santa Starts Wrapping Gifts?
Overview
Equity markets rallied last week across the world. The S&P500 rose 1.8%. International equities rallied as well with Japan/Nikkei (+3.6%), France/CAC (+2.6%), and Canada/TSX gaining 2.5%. The dead zone is ending, and the 3rd quarter earnings season has begun with bank earnings last week. This will be followed by a restarting of stock buybacks over the next 2-4 weeks.
Economic Data and the Fed Funds Futures
For those focused on government data, U.S. CPI increased 0.4% in September, lifting the annual to 5.4%. Core CPI increased 0.2%, keeping the annual change at 4.0% for the second straight month. Against easy comps, and global economic reopening, these mark the highest range for core inflation in 30 years. Inflation rates should peak early to mid 1q22 and then recede, potentially sharply, through the spring of 2022. Our current view is that when things settle down, headline and core inflation should be running in a 2.5-3% range.
Much is being made on the financial news channels about future interest rate moves by the Federal Reserve in 2022. Recent market expectations of Federal Reserve (Fed) rate hikes have moved forward to imply liftoff in late 2022. The often quoted “Fed Funds Futures market” is currently pricing in just over 1 rate hike in 2H 2022. We remind investors that this “market” has a horrible history of being at all predictive of future Fed interest rate moves. Its “predictive” ability has extended out to merely 1-2 weeks prior to Fed meetings. Currently, our team expects both a sizable fiscal drag and moderating inflation in 2022 to move initial rate hikes back into 2023.
Covid Update
Daily case trends for COVID-19 look positive. The arrival of both booster shots, together with growing natural immunity has meant that COVID is claiming fewer new victims. Growing evidence seems to suggest that there is a stronger “hybrid immunity” being provided to those who have been previously infected and then get vaccinated. The overall positivity rate in the United States is sinking and trending down. An upturn from here would be something to watch out for.
The United States is set to lift international travel restrictions on November 8th for fully vaccinated individuals from 26 nations. This has benefits for companies that are travel oriented including airlines, cruise lines, hotels, restaurants, and cities with a strong tourism element.
A Question for the “Top-Callers”
Looking back at 2021, the S&P 500 has continued to rise in the face of almost consistent skepticism and strategists who want to “call the top.” Some highlights:
S&P 500 falls in January 2021 –> strategists call a top
Lumber prices rise –> strategists call a top
COVID-19 Wave 3 begins –> strategists call a top
Interest rates rise –> strategists call a top
FAANG stocks struggle in spring –> strategists call a top
Delta variant cases spreads in the US –> strategists call a top
GDP growth slows –> strategists call a top
Stocks decline by about 5% in September –> strategists call a top
Every time the market has wobbled, there have been pundits, media voices, and strategies who want to swoop in and call the top, in panicky tones at times. This is largely unhelpful for long-term investors and the vast majority of this falls into the “noise” category. To be clear, eventually, there will be a market top, and subsequent decline. Someone will finally be correct in their “market top call.”
But the pertinent question right now is – why should that happen in the last few months of 2021?
We have been positive on the end of the year and remain so. As detailed in last week’s podcast and market update, there are a number of factors that we consider both relevant to investors and positive looking forward into the end of the year. Our view will change with the data (and we keep you informed of our views!), but currently we still see a stronger Q4 for the stock market.
The Investment Team on YouTube!
Speaking of last week’s podcast, in a piece of exciting news for us, we’ve started providing our “Stock Talk” podcast in video form on Oak Harvest’s YouTube channel! The audio-only versions will remain available as usual. Stock Talk is a weekly show that focuses on market news and opinions from the team at Oak Harvest. If you have some interest, take a look at the “Oak Harvest Financial Group” YouTube channel for both the Stock Talk series and other financial and retirement planning videos from Oak Harvest.
The Investment Team plans to potentially expand our video releases as well, so please let us know if there any particular topics you would like us to cover. The video release of last week’s podcast, “Things That Lead,” can be found here:
https://www.youtube.com/watch?v=a7axXpcj2NE
A quick summary of the video follows:
Four real-time data series that have historically led the S&P500 price move upward by a few months have all flashed positive signals while others were focusing on macroeconomic data.
1- The currency pair, the Euro versus the Yen FX currency cross has pivoted higher.
2- Bitcoin bottomed near $28-30k a few months ago and is now closing in on its all-time highs foreshadowing higher moves in the S&P 500.
3- Future volatility (not the Vix Index) has begun to pivot lower.
4- The contrary indicator, investor sentiment is at the same lows as October 2020 into the Presidential election, and as April, 2020 in the midst of the Corona pandemic.
Stock Talk Podcast (Weekly Market News and Opinion from Oak Harvest):
https://oakharvestfg.com/stock-talk-podcast/
The Investor Mindset Podcast (Introduction to Critical Concepts for Investors):
https://oakharvestfg.com/investor-mindset/
Interesting Reading:
https://oakharvestfg.com/tuning-out-the-noise/
This content contains general information and express the views of Oak Harvest Investment Services. All data, articles, and information cited are believed to be reliable at the time of creation; however, Oak Harvest does not warrant any information contained herein to be correct, complete, accurate or timely.
Oak Harvest provides links to content produced by other websites that OHFG does not control, and Oak Harvest does not necessarily approve or endorse such content and does not guarantee its accuracy. Nothing in this content constitutes personalized investment advice. Any charts, indicators, or graphs included or referenced in this content have limitations, and no such material is able, in and of itself, to provide a buy or sell recommendation for any security. Strategies and ideas discussed may not be right for you, and views and opinions expressed may change without notice. Strategies and ideas discussed will not apply to all client accounts or portfolios.
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