Things you need to know –
Frankly, my dear, I don’t care” – Rhett Butler to Scarlett O’Hara – 1939
The yr. – 1939…..on the Big Screen was “Gone with The Wind” a classic and world famous movie starring Clark Gable and Vivien Leigh – It is – a movie of a bygone era….it tells the story of the American Civil War and Reconstruction from the Southern perspective………it won 10 academy awards, was among the first of the major motion picture studios to shot in “Technicolor” and became the highest grossing film of all time. I give you this tidbit of information because it seems appropriate…….
The quote expresses complete and utter frustration on behalf of Rhett Butler – as he no longer cares what happens to Scarlett as she pleads – “Where shall I go? What shall I do?”
And that my friends are the question that confronts us for 2022……as we tie up the loose ends in 2021…. Where shall we go, what she we do? Should we expect another stellar year, or should we expect a return to normal? (If there is even a description of normal any longer).
Stocks are closer to all-time highs – the Dow gaining 18% ytd, the S&P up 27% ytd, the Nasdaq ahead by 22% ytd, the Russell – the worst performer – up 14% ytd while the Dow Transports stole the show – rising 31% ytd.
Individual sectors performing even better…. Energy – XLE up a whopping 46%, followed by Real Estate – XLRE up 41%, Tech – XLK up 34%, while Financials – XLF gained 32%. Consumer Discretionary – XLY up 27%, Healthcare – XLV and Basic Materials – XLB both up 24% – leaving Consumer Staples and Utilities up 13% each. And within each sector we have seen individual names get rewarded while others got punished. Many of those highflying WFH names coming under the knife as money began to move out of those names and into themes that are expected to be popular in the new year.
Volumes this week – as expected – are low, many professionals are away for the holiday leaving the algo’s in charge and this results in more exaggerated moves and that could not be any clearer than what we have seen in the last 10 trading days as the Santa rally remained intact and portfolio managers and retail investor did some ‘yearend window dressing’ sending the S&P up 6.5%, the Dow up 5.5%, the Nasdaq up 6.5%, the Russell up 5.5% and the Transports up 7%.
10 Yr. Treasuries will end the year yielding about 1.5% ish – well below what many expected in early 2021 – when the talk of 2+% rates were all the rage. Oil is set to end the year at about $76.50/barrel – up 65% from where it began the year – part of that move can be tied to the Biden’s energy policy and part can be attributed to rising global demand in a recovering world. Gold is trading at $1820/oz down 7% on the year. And the crypto’s continued to provide excitement…with Bitcoin rising 63% to end the year near $49k after being up more than 130% at $69k in November, Ethereum will end the year up 433% at $4k after testing as high as up 544% or $5k.
Investors and markets got another scare in early December when the 3rd derivative of Covid began washing over the world, countries and companies once again faced with what to do. Restrictions, lockdowns, mandates, closures, and rates of infections are once again part of the daily conversation. Airlines cancelling flights in record numbers, restaurants closed in NYC, Chicago, and LA. Broadway shut down and businesses that were trying to come back are going back to ‘remote statuses. The vaccines that were supposed to ‘protect’ us from getting sick, in fact do not, but they DO blunt the severity of the virus if you get it. And that is a positive.
The appearance of Omicron 3 weeks ago sent global markets tumbling as investors tried to parse thru the data and headlines – what started in South Africa was now on every continent and in every country around the world – the virus essentially ‘flipping the bird’ to the medical/scientific community in what felt like that scene out of the movie when Rhett Butler says – “Frankly my dear, I don’t give a damn..”
The new year will bring us other things to consider as well….as institutional and retail investors prepare for what is sure to be another interesting and volatile year considering all the themes that will be the storyline for 2022.
We have the mid-term elections in November and the chatter surrounding predicted outcomes has already started and is sure to get even ‘louder’ as winter turns to spring and spring turns to summer….and then we have the big ELEPHANT in the room – the FED and what they have up their sleeve for the coming months. While Jay Powell has been clear about the need to taper and move on rates – he has been a bit vague about what the roadmap really is. It remains ‘fluid’ is all we know…. Yes, he announced a doubling of the taper at the December meeting – but left the door open for January and beyond in terms of the pace of tapering and the pace of rate moves…..As we have seen – there are a range of opinions about what needs to happen – some thinking that he needs to just stop the stimulus now and raise rates, while others remain in the camp that we should go slow…. Much will depend on the what the macro eco data and the inflation data tell us…. Will it continue to be strong, or will we see a ‘weakening’ in early 2022? What we know right now is that the stimulus will cease to exist by the spring and rates are expected to rise at least 3 times. So, anything that veers off this course will catch the markets by surprise – unless of course they (the FED) can successfully jawbone it to where they want.
And then there is the ‘agenda’ – will Democrats get Joe Manchin to come and take a seat at their table or will he remain steadfast in his opposition to Biden’s BBB plan? Don’t forget the 3 nominees to the Federal Reserve – who will they be, what will they think and how will that impact the investment horizon.
And then – should we prepare for a 4th derivative of Covid sometime in the spring/summer? I mean this can’t just be over, right?
And what will be the geo-political issues this year. Will China make a move on Taiwan, and will Vlad invade the Ukraine? We haven’t heard much from the Mid-East lately – so expect that to be part of the conversation sometime in 2022…. Why? You should ask Why NOT?
So much to consider for investors – so this is not the time to fall asleep at all.
My gut tells me to become a bit more defensive in the new year, allocate new monies to sectors that have underperformed as well as sectors that are expected to perform well in this part of the cycle…..think VALUE names….I know – they are boring…..but they are big AND beautiful as well…see my appearance on Making Money yesterday with Jackie DeAngelis (filling in for Charles Payne) on Fox Business.
US futures are down this morning – Dow losing 60 pts, the S&P off 8, the Nasdaq down 30 and the Russell down 5 pts. Asian markets ended the year mixed – with China and Hong Kong down 5% and 14% respectively, while Japan was up 5%, Australia up 13%, Taiwan up 24% and South Korea up 3.6%. Many European markets are closed but the ones that are open are the UK and France are both down small.
Auckland New Zealand has already welcomed in the new year with Australia and the rest of the Asian continent only hours behind…. The sun is just rising over the Atlantic – markets are set to open, volumes and trading not expected to do much of anything….as the year comes to an end. Monday- the slate will be wiped clean; the indexes will be reset to zero and the game begins anew.
Remember investing is dynamic not static…Pay attention and talk to your advisor.
Remember you can text the word INVEST to 21000 on your cell phone to get my digital business card. Feel free to download it and send me off an email or text. Happy to engage and talk markets, planning, thoughts, concerns, and ideas.
You can follow me on Twitter and TikTok @kennypolcari and on IG @kennyp1961.
You can also find my daily videos on my YouTube channel – Kennypolcarimedia – My URL address here: https://www.youtube.com/user/kennypolcarimedia
Take Good Care
Chief Market Strategist, Consultant
Ricotta Coffee Cream
One greater and simpler desert for the holidays –
Ricotta Coffee Cream – If it takes you longer than 1 min – you did something wrong!
This is a combination of Ricotta cheese, rum, and espresso coffee……(who remembers Medaglia d’Oro Espresso?)
You need: 1 12/ lbs. of Ricotta Cheese, 2/3 cup of sugar, 5 tblspn of dark rum, 2/3 cup of espresso.
Get out the food processor (or blender) – add the ingredients. Blend until you have a nice creamy consistency.
Pour the mixture into individual glasses or small desert cups/bowls. You can use white wine glasses for a more dramatic effect. Place in the fridge and allow to cool overnight. After your dinner party – remove from the fridge – adorn with fresh coffee beans and serve