• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing

Lay of the Land, Central Bankers, Looking Ahead, ETFs, Inflation, Apple at 3T

Yes, volatility beckons. I hear it too. There may be a revaluation of equities across the board in 2022.
By STEPHEN GUILFOYLE
Dec 13, 2021 | 07:41 AM EST
Stocks quotes in this article: PFE, BNTX, ARKK, BLK, STT, NVDA, AAPL, MSFT, GOOGL, YUM, BYND

Just where are we? Probably not where we expected to be a week ago, or a month ago. A year ago? Maybe. I think we all expected a strong equity market in 2021 just based on a unified feeling of optimism as we put the year 2020 to bed. Last week, equity markets, or more specifically, the large cap equity indexes roared back from what had been a tougher kind of week for the five days prior. It became very difficult to call that threat to financial markets presented that week over and done however, despite the rally across both the equity marketplace and the long end of the US Treasury security yield curve.

Sure, there seemed to be plenty of movement at the point or points of sale, but there just was not a ton of action there in aggregate. The Dow Industrials led the way last week, up 4.02% over five days, with the Nasdaq 100 hot in pursuit, up 3.95% for the week, and now up 26.72% year to date, The weaklings, though that is certainly not the right word, for the week came from areas most dependent upon economic growth. The Dow Transports and Russell 2000 though lagging broader markets, scored five day increases of 2.74% and 2.43%, respectively. One looking at those numbers does have to acknowledge that the Dow Transports are up 31.16% so far this year, which leads all commonly followed indices for 2021, while the Russell 2000 has gained just 12% over that time. That places the most widely watched equity index for small-cap stocks in last place for all large indexes not confined to one sector nor industry grouping.

The fact is that while composite trading volumes did contract for each and every day last week from the week prior for both Nasdaq-listed names and for subordinates of the Nasdaq Composite itself, that composite volume did finally increase ever so slightly on Friday from Thursday for NYSE-listed stocks as well as constituent names to the S&P 500. That said, the increase appears sideways on a chart, and remained well below 50 day volume-based simple moving averages. This can not confirm for us, a return to broad professional accumulation ahead of this week's plethora of central bank policy meetings.

Besides, breadth was really lousy on Friday in spite of positive headline index performance. Losers beat winners on Friday at both of New York's primary equity exchanges, while declining volume easily bested advancing volume for Nasdaq-domiciled names.

Central Bank-a-Palooza

The week ahead will be dominated by central bankers. As we all know the Federal Reserve's FOMC will publish a new policy statement as well as new projections for economic performance and short-term interest rates this Wednesday, December 15th. Fed Chair Jerome Powell will also open himself up to the financial media in response to the occasion as he does eight times a year.

The next day, Thursday the 16th, will bring policy decisions from the European Central Bank, The Bank of England and the Bank of Japan. The Fed is expected to increase at least the pace of its tapering of asset purchases or to look at it another way, the Fed is expected to significantly slow its balance sheet expansion program in an attempt to be in a more flexible position sooner should the need to confront consumer level inflation directly persist well into the new year.

So, what are traders and investors watching right now?

Short-term? Probably the dot plot for 2022, and 2023, as well as all things Omicron. UK Prime Minister Boris Johnson warns of a "tidal wave" of new infection as as new study out of Israel (done by the Sheba Medical Center and the Ministry of Health's Central Virology Lab) shows that three doses of the Pfizer (PFE) /BioNTech (BNTX) does indeed bolster protection against the new variant.

Speaking of global central banks, the overnight talk that has equity index futures moving higher is that the PBOC (People's Bank of China) is likely with Beijing's approval to add liquidity and ease monetary policy perhaps with an assist on the fiscal side as Mainland China moves into 2022. This will be in stark contrast to a Federal Reserve and probably an ECB that at least jawbones on the removal of accommodation this Thursday. That said, whatever signal ECB President Christine Lagarde sends she will have to send alone. ECB Vice President Luis de Guindos who usually appears at Lagarde's side at public events, has apparently not been in contact with the president and has tested positive for Covid-19. The ECB is expected to start reducing asset purchases this April in an effort to also be in a more flexible place sooner, following the Fed's lead.

Focus

To wrap the above up into a neat little box and put a bow on it, traders and investors are of course watching the central banks, but to say that is to play checkers as opposed to playing chess. What we are watching as we move forward... this week and most probably well into 2022. Perhaps beyond.

1) Covid's impact on supply lines, labor markets, and ultimately... inflation.

2) Inflation's impact on monetary policy.

3) Covid and inflation's impact on fiscal policy.

4) Global geopolitical threat levels.

Having a Good Year?

Blame Cathie Wood (ARKK) and the success of her actively managed ETFs in 2020? The Wall Street Journal reported on Sunday night that 2021 year to date inflows into global exchange traded funds had exceeded $1T by the end of November. The number for all of 2020, was $735.7B, by the way. U.S. investors have supposedly placed $84B of this total into actively managed ETFs that try to outperform a benchmark, which is about 10% of domestic inflows, up from 8% a year earlier, according to Morningstar.

FactSet reports that more than 380 actively managed ETFs launched this year, bringing the total up to nearly 600. A rough 60% of those have less than $100M in assets, while more than 50% have less than $50M. Is this a warning? I don't know yet. Most of these funds are small, as BlackRock (BLK) and State Street (STT) dominate the ETF industry so I don't think a broad market correction necessarily causes a collapse at the index level. I think one does have to be fully cognizant of the breadth of what comprises market structure and asset allocation though. It would not take a decision made by too many managers to leave a visible mark.

On Inflation

On Friday, the Bureau of Labor Statistics released its November CPI data. There were no surprises. Headline level inflation printed red hot at 6.8% year over year, while core inflation grew 4.9% annually. Above trend growth both year over year as well as month over month (which is less of a focus) was clustered around Energy and energy based components. Prices for services (especially medical services) continued to increase well below trend. Prices remain below trend for shelter as well, which is the single largest component within the CPI print. Many senior economists are starting to doubt the validity of the 3.8% inflation being reported for that one entry.

Should the shelter component be revised or corrected later, this could change public perception of currently scorching inflation. Until then, there was absolutely nothing in Friday's CPI that would convince a serious economist that inflation, though accelerating far beyond anything expected, was to also become more permanent than previously expected. The threat here would be from expectations themselves. The more that inflation is sensationalized by an economically ignorant mainstream media, the more likely folks across many walks of life will come to expect to pay higher prices for goods.

On the other hand, as you know, there always is one... wages are growing (4.8%) far slower than is consumer level inflation even if average weekly hours (34.8) is displaying some increased demand for labor. The fact is that labor has not been able even in this environment to force the supply side of that market to drastically alter their approach. With that, the velocity of money as measured by a ratio of either M1 or M2, has only continued to slow, and according to the St. Louis Fed... that trend continued through the third quarter. It may just be opinion, but it is my opinion and not an uneducated one, that outside of the impacts of the pandemic which are unpredictable, rising consumer level inflation can not be sustained without a correlative increase in the pace of transaction. You see a lot of hand waving "economists" on television striving to be "noticed". Don't watch them, watch the data, and watch centralization, or decentralization of pertinent trends.

Expanding the monetary base, while expanding upon liquidity, has also served to slow velocity as illustrated through ratio. What would the opposite do? Mind you, that I am not a dove, not even close... but these are the questions that run through my head at 4 am. Oh, and watch the Treasury yield curve closely. I have not yet bought the idea of persistently high consumer level inflation and neither has the bond market.

On That Note...

.... Mr. President, this is Senator Joe Manchin of West Virginia. I think you two have met.

Stocks

The most interesting equity market story continues to be that of the greatest consumer electronics company of all-time that has expanded into services and will certainly be a major player in whatever comes of the Metaverse, or as Nvidia's (NVDA) Jensen Huang puts it... the "Omniverse." I speak of Apple (AAPL) . The stock closed up 10.9% last week at $179.45, and at a market cap of $2.944T. Apple became the first public company in world history to hit a $1T market cap in 2018, and then hit $2T in 2020. The pace of cap growth is accelerating, despite the feeling at times that the stock moves sideways. Here we are, in mid-December 2021, and there stands a good chance that Apple hits $3T this week. (The share price needs to hit $182 and change),and the competition for the title of "largest publicly traded U.S. company" has thinned a bit. Only Microsoft (MSFT) is even kind of in the ballpark at this point at $2.57T. Alphabet (GOOGL) is very close to crossing the $2T threshold, which incredibly leaves that firm's cap size almost a full $1T smaller than Apple's. Basically, add the above mentioned Nvidia to Alphabet and they are still smaller than Apple.

The Apple story might be the most interesting, but perhaps the most "fun" story last week belonged to Taco Bell parent Yum! Brands (YUM) and Beyond Meat (BYND) . Taco Bell apparently told the purveyor of faux meats that the version of their product that had been presented did not meet the fast-food chain's rigorous standards. The two companies are still trying to find some kind of a fit, and two Beyond Meat employees that had worked on the project are no longer with the firm, but for me, that story ran with a high "wow" factor.

One Last Thought

Yes, volatility beckons. I hear it too. There may be a revaluation of equities across the board in 2022. Then again, as long as real rates remain negative and wage growth prints at substantial deficit to rising inflation, are not equities the most attractive place to be. It's when inflation falls below wage growth, and real rates approach "break-even" that the game becomes more challenging. That day may be out there, stalking. In fact, it might even be close, but that day is not today, my young friends.

Economics (All Times Eastern)

No significant domestic macroeconomic data-points scheduled for release.

The Fed (All Times Eastern)

Fed Blackout Period.

Today's Earnings Highlights (Consensus EPS Expectations)

No significant corporate quarterly results scheduled for release.

(NVDA, AAPL, MSFT and GOOGL are holdings in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells these stocks? Learn more now.)

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Stephen Guilfoyle was Long PFE, NVDA, MSFT, APPL equity.

TAGS: Currencies | Economic Data | Economy | ETFs | Federal Reserve | Interest Rates | Investing | Markets | Stocks | Trading

More from Investing

More Good Dividend Stocks With Pretty Charts

Bruce Kamich
Jan 27, 2023 1:31 PM EST

In this second part of a two-part series, we look at the final five of 10 stocks with the best of the both worlds.

Even Some Out of Fashion Names Are Now Back in Style

Jonathan Heller
Jan 27, 2023 12:30 PM EST

Sure, we're only one month in to 2023, but so far these stocks are starting the new year with a bang.

I'm Making Small Bets With These 2 Stocks

Bret Jensen
Jan 27, 2023 11:30 AM EST

While I remain cautious on the overall market, I continue to act upon the limited opportunities I'm finding in the current market.

Chevron Is Crushing It and for My Portfolio Too: Here's the Trade

Stephen Guilfoyle
Jan 27, 2023 10:51 AM EST

The only reason to exit the stock now is profit-taking.

Good Dividend Payers With Pretty Charts

Bruce Kamich
Jan 27, 2023 10:15 AM EST

You can have the best of both worlds -- at least when it comes to a select group of dividend stocks -- as we'll see in this first part of a two part series.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:48 AM EST REAL MONEY

    Watch Doug Kass on the Daily Rundown!

    In today's Action Alerts PLUS Daily Rundown, Doug ...
  • 11:03 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend On Real Money

    It's time to start using this power to build great...
  • 03:06 PM EST BOB LANG

    LEAPS Webinar

    This week, I offered a free webinar session talkin...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login