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HAPPY NEW YEAR!

| January 03, 2022
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THE WEEK ON WALL STREET

Stocks closed out the year on a mostly positive note, adding to the year’s gains as

concerns about the economic issues of Omicron infections receded.   The Dow Jones

Industrial Average rose 1.08%, while the Standard & Poor’s 500 picked up 0.85%.

The Nasdaq Composite index was flat (-0.05%) for the week. The MSCI EAFE index,

which tracks developed overseas stock markets, posted an increase of 0.80%.


STOCKS NOTCH RECORD HIGHS 

The end of the year is historically a strong period for stocks–a seasonal pattern

dubbed “The Santa Claus Rally.” This year’s final week of trading did not disappoint

as stocks posted healthy gains to kick off the week, despite a global increase in

Omicron infections. Investors were buoyed by data that showed fewer associated

hospitalizations, which helped ease fears of the variant’s economic impact.   The

S&P 500 set multiple fresh record highs, with Wednesday’s new high representing

the 70th such high in 2021, while the Dow Industrials recorded its first new record

since November. Stocks drifted on low trading volume in the final two trading days

of the year, capping a good week, a solid month, and a strong year for investors.

 
ROBUST HOLIDAY SALES 

The market got off to a good start last week in part due to a strong holiday sales

report. A major credit card issuer reported that consumer holiday spending rose

8.5% from last year’s levels, driven by an 11.0% gain in online sales. It was the

biggest annual increase in 17 years. The spending by consumers exceeded pre-

pandemic sales by 10.7%. The retail categories that experienced the highest sales

increases were apparel (+47.3%) and jewelry (+32.0%).

It was a particularly robust number in view of investor concerns about supply chain

disruptions, port congestion, labor shortages, and wavering consumer confidence.

 
THE WEEK AHEAD: KEY ECONOMIC DATA

Tuesday: JOLTS (Job Openings and Turnover Survey). Institute for Supply

Management (ISM) Manufacturing Purchasing Managers’ Index (PMI).

Thursday: Jobless Claims. Factory Orders. Institute for Supply Management (ISM)

Non- Manufacturing Purchasing Managers’ Index (PMI).

Friday: Employment Situation.

 
THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS

Thursday: Constellation Brands, Inc. (STZ), Walgreens Boots Alliance, Inc. (WBA),

Conagra Brands (CAG).
 
FINAL THOUGHTS 

Another year is in the books.  Of course, the markets aren’t one to rest, so it’s already

time to start looking forward again.  Many have called for the markets to correct.

When pushed for why, the answer is simply “inflation” or “we’re due.” As the saying

goes, bull markets don’t die of old age.  Something kills them.

 
Looking forward, it’s unclear what the specific thing is that could kill this market.

The most obvious bull killer would be the Fed. It has been the Fed that has largely

fueled the market since 2008 with all measure of different forms of monetary

easing. Looking forward, the talk is about monetary tightening.  It may be tempting

to blame Covid or Congress or any other measures. Those certainly flavor the

cocktail. But in the end, the Fed has pulled the big levers. Assuming they tighten,

you’d expect a reaction.  However, the markets are looking for this. They expect it

and the Fed has been forecasting it. Additionally, historical data suggests markets

often rise into higher rates.  This would make sense based on the concept that the

economy is strengthening and therefore rates must rise. The question is, when does

the rubber band break?

 
Stay tuned…

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