January 16, 2022
Weekly Market Outlook
By Keith Schneider
Over the past few weeks, we have questioned what the 2022 song might be so you can profit from being in tune with the market’s trends.
Last week we highlighted a skip in the early 2022 song.
If you missed last week’s article, click here.
As you’ll read, this week we find good news, but also a report of the “mother of all supply shocks”!
Over the past month, Wall Street has certainly been optimistic about the upcoming earnings reporting season. The market, however, may be telling a different story altogether.
After a significant rise in stock prices in 2021 fueled by high consumer sentiment, the Fed’s accommodative policies, huge public inflows into stocks thru ETFs, and historical corporate buybacks…
The market is beginning to play a different tune.
Our criticism has been that the Fed has been too sanguine in their view that inflation was “transitory.”
We’ve been highlighting the signs of stagflation.
Finally, the Fed is talking about changing its policy.
Unfortunately, they will have to adopt an aggressive change in their policy to “catch up”, and slow down the accelerating inflation rate.
It appears likely that to correct their mistake of doing nothing last year, they may have to overshoot and raise rates more times in 2022-23 than previously expected.
These interest rate shifts will likely slow down consumer demand and begin to put the “brakes” on the hot consumption trend fueling the economic growth rate story (which has fueled rising stock prices).
A small piece of evidence supporting our view showed up in Friday’s worse than expected Retail Sales report, which reported…
“Total retail sales were down 1.9% month-over-month in December (Briefing.com consensus 0.0%)”
Breifing.com eloquently summarized this negative surprise this way …
“The key takeaway from the report is that total retail sales, which are not adjusted for inflation, contracted at their fastest pace since last February in the face of broadly higher prices. This suggests that inflation is weighing down consumer spending.”
We agree.
However, the song that causes us even more concern this week is the ever-increasing break in the global supply chain.
Given China’s “Covid-zero” policy in general, they are beginning to lock down manufacturing hubs including some of their most important ports.
Bloomberg wrote yesterday:
“As a result of the slow movement of good through some of China’s busiest and most important ports now means shippers are now diverting to Shanghai causing the type of knock-on delays the world’s biggest container port that led to massive congestion bottlenecks last summer that eventually translated into a record number of container ships waiting off the coast of California, a glut that hasn’t been cleared to this day”.
See chart below:
This prompted an economist in one of the world’s largest banks, HSBC, to warn that the world economy could be headed to the “mother of all” supply chain shocks.
This is becoming more well-known as companies begin to report earnings and warn that their supply chains are disrupted.
This, in turn, will likely hit stock prices as analysts tune down their expectations for earnings and investors lower the multiple (earnings valuation) they’re willing to pay for stocks.
Lower earnings expectations and multiple contraction have both been primary factors that have weighed on technology stocks in 2022.
In this environment…
We offer these 10 suggestions to invest successfully in these volatile times…
Here are this week’s market highlights from our Big View:
Risk On/Bullish
Risk Off/Bearish
Neutral Metrics
Content for this article was contributed by: Keith Schneider, Donn Goodman, and Holden Milstein
Every week you'll gain actionable insight with:
