Quantitative Easing

Positive side of inflation, exciting 2022

The Labor Department announced last week that the (PPI) jumped 0.8% in November. Excluding food, energy and trade margins, the 0.7% increase in November is therefore no longer solely linked to the rise in food and energy prices, suggesting that inflation is no longer “transitory”.

The upside to this inflation is that the bullish residential real estate and equity markets remain the best hedge against inflation, so growth stocks and dividend growth stocks should remain an oasis for the future. Investors. Since the market began to recover from its initial decline in March 2020, millions of new investors have opened brokerage accounts as these investors increasingly look to stocks to protect themselves against lower inflation rates. higher than we have seen in 39 years (since 1982).

The net result is that 2021 has been a great year for most markets, but fears remain as Elon Musk and other billionaires have sold a record number of stocks. The bears suggest that if “smart money” sells, then a market correction must be imminent. However, The Wall Street Journal noted that in the third quarter, share buybacks reached $ 234.5 billion, a record high. This may explain why companies continue to post better-than-expected earnings since share buybacks tend to increase underlying earnings per share.

As for an “imminent” correction, we already had a 5% drop between Thanksgiving week and December 3rd.e, when the stock market overreacted to the Covid-19 Omicron variant, along with unnecessary fears of a Fed cut. fell almost 8% in the same amount of time, then successfully retested on December 3e hollow on Friday, December 17e.

This new test happened on low trading volume which tells me it should be safe to invest in the stock market as most of the risk has been eliminated. As I’ve mentioned a number of times, the last week of the year (between Christmas and New Years) is a great time to invest, as most year-end tax sales are sold out.

Fortunately, the Treasury Department recently held successful auctions of Treasury securities and although intermediate yields have risen slightly, but briefly, long-term bond yields and others remain remarkably stable. Due to strong international demand for Treasuries, the Fed will continue to gradually reduce its quantitative easing.

As we close 2021 the rest is very strong as international investors increasingly look to the United States as we have positive interest rates (compared to flat to negative interest rates in Japan and in most of Europe) and a hard currency. Our economy is also in better shape than that of Europe or Japan. The ISM services index is at an all time high and the ISM manufacturing index remains robust, so fourth quarter GDP growth is shaping up to make 2022 a year in the record books. Given that roughly half of the S&P 500’s sales are made outside the United States, a strong U.S. dollar should help create record sales and increase profits.

Looking ahead to 2022, I expect growth stocks and dividend growth stocks to prosper. Why?

  • First, although year-over-year earnings comparisons will become more difficult in 2022, a tighter market is good news for growth stocks and dividend growth stocks, and bad news for the crowds. “Index funds”, since growth stocks and dividend growth stocks have traditionally thrived in a more constrained and selective market environment like this.
  • Second, the Fed will likely remain reasonably accommodating after ending its quantitative easing by March and perhaps raising key interest rates, starting in March, but gradually.
  • Third, inflation will eventually decelerate, but it will likely stay above the Fed’s target rate until 2022. Inflation could fall below 3% by the end of 2022, which the stock market will celebrate. probably.
  • Fourth, the leadership of the House of Representatives and Senate is expected to change due to the midterm elections, so that Wall Street will finally get the divided government it dreams of.

Another big change is that the pandemic has accelerated technological change and increased productivity in the United States, so companies can now make more money with fewer workers. Investors can take advantage of artificial intelligence, with companies like NVIDIA (NASDAQ :); cybersecurity, with Crowdstrike (NASDAQ 🙂 and Fortinet (NASDAQ :); 5G, with Alphabet (NASDAQ :), Cadence Design Systems (NASDAQ :), EPAM Systems (NYSE 🙂 and Keysight Technologies (NYSE :); electric vehicles, with Ford (NYSE :), Panasonic (T 🙂 and Volkswagen (DE :); and the semiconductor industries, with KLA-Tencor Corporation (NASDAQ 🙂 and United Microelectronics (NYSE :).

These companies and a few others are leading this new wave of higher productivity. Investors have much to be excited about.

Retail sales disappointed – But Fed still accelerates ‘taper’

Last Wednesday, the Commerce Department announced that it had risen only 0.3% in November. Overall, the November retail sales report was very disappointing and will undoubtedly lead to downward revisions to GDP in the fourth quarter. It seems that rising gasoline prices are “zapping” the purchasing power of consumers and may have an impact on consumer confidence.

The other big news on Wednesday was that the (FOMC) statement was surprisingly dovish in the wake of this morning’s disappointing retail sales report. Specifically, even if the FOMC statement implied that there would be three key interest rate hikes of 0.25% each for the fed funds rate in 2022, these rate hikes would not begin until the Fed ‘has ended its reduction.

The Labor Department said Thursday that new jobless claims over the past week rose to 206,000. Continuing jobless claims fell to 1.845 million. New jobless claims remain close to their lowest level in 52 years, and the fact that jobless claims continue to fall is very good news. In my opinion, the Fed has fulfilled its mandate of unemployment and can now focus on the fights.