Stocks could ride the tailwind into the new year in 2021, but the job report and the Fed will be the focus

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

Brendan McDermid | Reuters

The coming week starts again with a busy economic calendar for the start of the new year, including the always important monthly job report.

After a stellar 2021, stocks are heading into 2022 with a tailwind, but the New Year’s market performance will depend more on solid earnings growth and a strong economy than on a super-light Federal Reserve.

The S&P 500 rose 27% to 4,766 in an outstanding year and reached 70 record highs at the end. The benchmark outperformed the 19% increase in the Dow Jones Industrial Average and the 21% increase in the Nasdaq Composite.

With the opening bell on Monday, the clock will begin to tick on a quarter in which the first Fed rate hike since 2018 could take place. In the bond market, worries about Omicron’s latest Covid-19 variant could give way to an investment community more focused on resetting expectations of where rates will head in 2022.

The employment report is the key dates on a calendar that also includes ISM processing study dates and auto sales, both of which are scheduled for Tuesday. International trade data will be released on Thursday.

According to the Dow Jones, economists expect 405,000 new jobs to be created in the final month of 2021, up from 210,000 in November. The unemployment rate is expected to fall from 4.2% to 4.1%.

“It’s the beginning of a new year. History tells you we should start it off pretty strong, especially considering we’ve seen this kind of rolling correction,” said Sameer Samana, senior global equities strategist, Wells Fargo Investment Institutes. “We appreciate the fact that S&P has made new highs, but when you look at average stocks or small-cap stocks, their experiences are very different.”

The 2021 market was split with an initial spike in some soaring growth stocks, but then many of those names fell hard, and some of the big-cap names in the S&P 500 showed above-average performances.

Microsoft grew 51% over the course of the year, while Apple grew 34%. Home Depot was up 56% and American Express was up 35%. Ford gained 136%.

The ARK Innovation ETF, a high-profile collection of growth stocks in 2020, lost 24% over the year.

Feed ahead

The Fed will publish the minutes of its December meeting on Wednesday. Following that meeting, the central bank announced that it would cut back its former $ 120 billion. The March meeting is now seen as the first opportunity for the Fed to raise interest rates. The Fed has forecast three for 2022.

“I think next week people are starting to adapt to this changing currency landscape. It’s such a big deal,” said Peter Boockvar, chief investment officer, Bleakley Advisory Group. “We have never seen the liquidity flows of the last two years before.”

Strategists expect the stock market to be more troubled in 2022 as the Fed ends its bond purchases and hikes rates from zero. Equity strategists have an average target of 5,050 for the S&P 500, according to CNBC’s Strategist Survey.

Boockvar said the effects of the tightening policies will be felt around the world as other central banks cut asset-buying programs and raise interest rates.

“That flow of cash is slowing and we know how much it has helped,” said Boockvar. “You cannot separate a Fed tightening cycle from the stock market. You cannot separate the market. They are all interconnected. There is no way you can avoid tightening financial conditions.”

Wells’ Samana said his focus is on quality in US big-cap stocks for the new year. “You have to take what the market has to offer you and what it offers you now is that there aren’t many reasons to pull out of US large caps,” he said. “We like technology, we like communication services. We like financials and we like industrials. Two growth sectors and two cyclical sectors.

Samana said Wells strategists had downgraded the natural resources and energy sectors. At the same time, they upgraded the technology. “We want to have a much more balanced position by 2022, we just don’t know what opportunities will arise.”

Energy was the top performer in major sectors in 2021, up 48%, the best increase ever. Real estate followed with an increase of 42%. Technology was up 33% and financials were also up 33%.

Miller Tabak’s Matt Maley pointed out that the Consumer Staples Select Sector SPDR Fund outperformed Technology and Semiconductors in December. The fund gained nearly 10% while the Technology Select Sector SPDR Fund gained 3% over the month.

“In other words, the action on the stock exchange over the past few weeks has been very different from what many people have thought. We haven’t seen a melt … and tech stocks haven’t done that well. “Most people think,” Maley wrote in a note. “More importantly, one of the most defensive groups in the market has risen well. Ours In my opinion, this shows that investors are quite concerned about the impact the Fed’s new (more aggressive) tightening cycle could have “next year on the stock market.”

What else is there to see

The measures taken by OPEC + were an important factor in oil prices and oil stocks over the past year. West Texas Intermediate Futures rose about 55% in 2021.

OPEC + meets on Tuesday and is expected to continue its slow return policy of oil to the market.

Calendar for the week in advance

Monday

9:45 a.m. Manufacturing PMI

10:00 a.m. building expenses

Tuesday

Merits: MillerKnoll

Vehicle sales

10:30 a.m. ISM production

10:00 a.m. JOLTS

Wednesday

8:15 a.m. ADP employment

9:45 a.m. Service PMI

2:00 p.m. FOMC protocol

Thursday

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

8:30 a.m. initial applications

8:30 a.m. international trade

10:00 am ISM services

10:00 a.m. factory orders

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

Friday

8:30 a.m. Employment Report

10:00 a.m. San Francisco Fed President Mary Daly

12:15 p.m. Atlanta Fed President Raphael Bostic

12:30 p.m. Richmond Fed President Tom Barkin

15:00 consumer credit

Saturday

12:15 p.m. Atlanta Feds Bostic


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