The Dow, S&P and Nasdaq all finished Friday with their worst performance over the first five trading days of a year since 2016.
This so-called “first five days of January” indicator implies that, if the stock market falls over the first 5 days of the year, it is more likely to experience negative annual performance.
S&P 500 ended up 2016 returning 12% that year.
Regards
James
It feels like 2018 to me. First 5 days of January were great in 2018 and then October hit. In October tech got hammered the big 8 took 35% losses. QQQ ended down 22% for the year. It took over a year for tech to recover. Time will tell. Market timing is so hard if it was easy we would all be rich.
It may be more similar to 2000 bust. If you look at high flying growth, it’s been in a bear market all 2021. Basically market breadth has been getting worse leaving mega tech to pulling the cart the last few months especially for NASDAQ 100. Opposite of growth, I’ve been seeing my value strategy popping a lot the last few months.
Just my speculation (and take it for entertainment sake) but I think it’s only a matter of time and likely weeks to months before mega tech suffers a big hit which will be reflected most in the NASDAQ 100. Nvidia is currently trading at 30x price to sales. Intel right now is trading at 2x price to sales. I have a hard time believing that in 3-5 years Nvidia is going to grow 15x relative to Intel. Tesla is another poster case and I need not elaborate further. Maybe Amazon and Google are at better valuations, but that might not matter.
I find it very interesting how I’ve been seeing a lot of articles touting the past performance of the NASDAQ 100 and how it is the best index to invest in to keep generating good returns. It reminds me of right before the COVID crash how there were several articles about how market crashes would never happen again because of Fed support. Seems like a consensus viewpoint and one that should be prompting a contrarian line of thinking.
I’m seriously thinking energy has a lot gains ahead in the next 5 years just because the sector is so despised and hated. Reminds me of Philip Morris in the 1990s and how they went on to outperform in the following years.
Bloomberg Markets
@markets
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1 hour ago
The Fed will likely raise interest rates four times this year and will start its balance sheet runoff process in July, if not earlier, according to Goldman
Markets
Goldman Now Expects Four Fed Hikes, Sees Faster Runoff in 2022
By Enda Curran +Follow
January 9, 2022, 9:49 PM EST
The Federal Reserve will likely raise interest rates four times this year and will start its balance sheet runoff process in July, if not earlier, according to Goldman Sachs Group Inc.
Rapid progress in the U.S. labor market and hawkish signals in minutes from the Dec. 14-15 Federal Open Market Committee suggest faster normalization, Goldman’s Jan Hatzius said in a research note.
Regards
James
US 10y yields jump >1.80% for 1st time since Jan2020. US inflation data out on Wed will be keenly watched as concerns grow the Fed is behind the curve in tackling elevated price pressures. US CPI may have accelerated to 7% in Dec.
We need to watch stocks today. They are trading heavy. Rates moved a ton in week 1 of the year which is not good for asset prices. Crypto at levels that “should” hold (for now) but if Nasdaq rolls we will see more selling. We are in the ‘adult swim only’ zone.
Regards
James
What are the chances the Fed can actually implement those 4 rate increases before breaking something? Inflation is a much safer albeit insidious way to unwind debt.
Jeffrey,
They can either look like they’re trying to rein in inflation, or they can look like they’re trying to support the economy and financial markets. They can’t do both at the same time.
Regards
James
I am skeptical regarding the use of higher interest rates to fight inflation in this particular economic phase. To me, the current inflation is mostly due to reduced supply of goods caused by Covid-19’s disruption of transport and manufacturing, not by increasing demand overcoming a normal supply or unchecked growth. First and foremost it seems to be a worker shortage. How can increased interest rates improve that? Am I missing the point?
Bob,
If I understand correctly, the Federal Reserve (FED) is mandated by US Congress to conduct monetary policy 1. so as to promote effectively the goals of maximum employment 2. stable prices (inflation) and 3. moderate long-term interest rates. Even though there are three distinct goals of monetary policy, this is commonly known as the dual mandate.
Since inflation has been rising fast, FED is obligated to act based on the mandate. This is the reason that Goldman Sachs is based on when making their forecast for the expected interest rate increases.
Regards
James
I agree. The longer term deflationary trend should win out with time
The attached chart of US retail sales shows that the trend-line deviation occurred around Mar’21 and it’s probably due to COVID fiscal stimulus (American Rescue Plan, maybe). It’s hard to say whether it’s supply or demand driven. I’m betting demand since it’s coincident with stimulus. The Fed will raise rates to squelch the expectation of higher inflation.
Walter,
Fed is going to raise interest rates. Four 25 bps rate hikes is better than a 50/50 chance today vs 1 in 3 chance at the end of the year.
Regards
James
James,
In addition to the Fed response, I expect the Dems will ease up on stimulus.
If inflation persists, it will become a mid-term election cycle topic that they will want to avoid.
Walter
Walter,
7%. Bang on the consensus. Interesting
Fed Hike Coming.
Regards
James
Bloomberg
U.S. Inflation Hits 39-Year High of 7%, Sets Stage for Fed Hike
By Reade Pickert +Follow
January 12, 2022, 8:32 AM EST Updated on January 12, 2022, 8:47 AM EST
U.S. consumer prices soared last year by the most in nearly four decades, illustrating red-hot inflation that sets the stage for the start of Federal Reserve interest-rate hikes as soon as March.
The consumer price index climbed 7% in 2021, the largest 12-month gain since June 1982, according to Labor Department data released Wednesday. The widely followed inflation gauge rose 0.5% from November, exceeding forecasts.
Agreed. From the attached article;
Walter, James or anyone,
It also seems to me that the fed has an interest in bond yields as well as inflation.
I base than on thinking it would be naive to assume that the fed will let yields rise to the point that the government cannot repay its debt. Part of which involves buying new bonds to refinance the debt, as I understand it.
Any ideas welcome including the idea that even the question shows I do not have finance degree (I don’t and that would be a simple statement of fact).
Anyway, if it turns out not to be a dumb question, how will this affect what the fed will (can) do? I do have some bonds in my portfolio and this is not just an academic discussion, with no practical implications, for me.
Best,
Jim,
The bond yields only affect bond price before maturity. All the governments bonds issued by the Federal Government are repaid at 100% of principal at maturity.
Regards
James
James,
Thank you for your reply.
So if the government wants to roll-over any bond debt (because some of the bonds have reached maturity) they would like the yields to be low, right? All other things considered (including inflation considerations) they would not like the yields to get too high? And this will also affect the maturity of the bonds they buy, affecting the yields to some degree?
Again, thank you.
Best,
Jim
Jim,
I believe the higher bond yield/steeper yield curve will have a bigger impact to the corporate bond market (thus stock price as it increase the borrowing cost of companies especially those that borrow long term) than government and municipal bonds IMHO.
Regards
James
James,
Great!!! Can you expand on how we should invest based where the corporate bond market is likely to go?
Best,
Jim
