The stock market may ride the tailwind of 2021 into the new year, but the employment report and the Federal Reserve will be the focus

Read Time:5 Minute, 27 Second


On December 9, 2021, a trader works on the trading floor of the New York Stock Exchange (NYSE).

Bren Dank Demead | Reuters

The new year will resume business in the busy economic calendar, including the always-important monthly employment report.

After a glorious year of 2021, the stock market will go downwind into 2022, but the market trend in the new year will depend more on steady earnings growth and a strong economy, rather than the super-easy Fed.

The Standard & Poor’s 500 Index rose 27% to 4,766 points in a landmark year, setting 70 record closing highs. The benchmark index exceeded the 19% increase of the Dow Jones Industrial Average and the 21% increase of the Nasdaq Composite Index.

With the opening bell on Monday, the clock for a quarter began to ticking, and this quarter may see the Fed’s first interest rate hike since 2018. Expectations on the direction of interest rates in 2022.

The employment report is the most important data on the calendar, which also includes ISM manufacturing survey data and car sales data scheduled to be released on Tuesday. International trade data will be released on Thursday.

According to Dow Jones data, economists expect an increase of 405,000 jobs in the last month of 2021, up from 210,000 in November. The unemployment rate is expected to fall from 4.2% to 4.1%.

“This is the beginning of a new year. History will tell you that we should start it in a very strong way, especially considering that we have seen this rolling correction,” said Sas, senior global equity strategist at Wells Fargo Investment Institute. Millsamana said. “We appreciate the fact that the S&P index has been hitting new highs, but when you look at common stocks or small-cap stocks, their experience is very different.”

The market in 2021 was forked by the initial surge of some high-growth stocks, but then many of these stocks fell sharply, and some large-cap stocks in the S&P 500 performed strongly.

Microsoft is up 51% this year, while Apple is up 34%. Home Depot rose 56% and American Express rose 35%. Ford rose 136%.

ARK Innovation ETF, a collection of high-flying growth stocks in 2020, has fallen 24% this year.

Fed in advance

On Wednesday, the Fed will release the minutes of its December meeting. After that meeting, the central bank announced that it would accelerate the reduction of its once-$120 billion monthly bond purchase program-which will now end in March instead of June. The March meeting is now seen as the Fed’s first opportunity to raise interest rates. The Fed predicts that there will be three in 2022.

“I think people will start to shift to this changing currency landscape next week. This is a big deal,” said Peter Boockvar, chief investment officer of Bleakley Advisory Group. “The liquidity flow in the past two years is something we have never seen before.”

Strategists expect the stock market to be more volatile in 2022 as the Fed ends bond purchases and takes measures to raise interest rates from zero. According to CNBC’s strategist survey, stock strategists’ median target for the S&P 500 index is 5,050.

Boockvar said that the world will feel the impact of austerity policies because other central banks have also reduced asset purchase plans and turned to interest rate hikes.

“Liquidity flows are slowing down, and we know how helpful it is,” Bukova said. “You can’t separate the Fed’s tightening cycle from the stock market. You can’t separate the market. They are all interrelated. Nothing can prevent a tightening of the financial environment.”

Samana of Wales said he will focus on the quality of the broader US stock market in the new year. “You have to accept what the market gives you. What it gives you now is that there are not many reasons to stay away from US large-cap stocks,” he said. “We like technology, we like communication services. We like finance, we like industry. Two growth sectors and two cyclical sectors. We have been reducing it to defensive sectors.”

Samana said that Wells strategists downgraded the materials and energy sector. At the same time, they upgraded their technology. “We hope to have a more balanced position in 2022, we just don’t know what opportunities will emerge.”

Energy is the best performer among the major industries in 2021, an increase of 48%, the best growth ever. It was followed by real estate, which rose 42%. Technology stocks rose 33%, and financial stocks also rose 33%.

Matt Marley of Miller Tabak pointed out that SPDR funds in the consumer staples select industry performed better than technology and semiconductors in December. The fund rose nearly 10%, while the technology select industry SPDR fund rose 3% this month.

“In other words, the stock market’s movements in the past few weeks have been very different from what many people think. We haven’t seen melt gains…tech stocks have not performed as well. Most people think,” Marley said in a note. Write. “More importantly, one of the most defensive groups in the market is the group that has been rebounding well. In our view, this tells us that investors are very worried about the possible impact of the Fed’s new (more aggressive) tightening cycle. The stock market next year.”

What else to see

The actions of OPEC+ have been an important factor driving oil prices and oil inventories in the past year. West Texas Intermediate crude oil futures rose by approximately 55% in 2021.

OPEC+ met on Tuesday and is expected to continue its policy of slowly returning to the market.

One week ahead of calendar

on Monday

9:45 am Manufacturing Purchasing Managers Index

10:00 am Construction expenditure

Tuesday

income: Miller Knoll

car sales

10:30 AM ISM Manufacturing

10:00 am bumpy

Wednesday

8:15 am ADP employment

9:45 am Service Industry Purchasing Managers Index

2:00pm FOMC meeting minutes

Thursday

income: Bed Bath and Beyond, Constellation Brands, Conagra, Walgreen Boots Alliance, PriceSmart, WD-40, Lamb Weston

8:30 am Initial claim

8:30 am International Trade

ISM service at 10:00 am

10:00 am factory order

1:15 p.m. St. Louis Fed President James Brad

Friday

8:30 am Employment report

10:00 am Mary Daly, Chairman of the San Francisco Federal Reserve Bank

12:15 pm Rafael Bostic, President of the Atlanta Federal Reserve Bank

12:30 noon Richmond Federal Reserve Chairman Tom Barking

3:00 pm Consumer Credit

Saturday

12:15 pm Bostic of the Atlanta Fed


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