JJ Kinahan, Chief Market Strategist, TD Ameritrade

(Monday Market Open) Stock index futures are pointing to a slightly lower open as last week’s range appears to carry over into the new week. Economic and earnings calendars are packed, providing investors with a wealth of information to peruse. With so much talk surrounding the Fed’s rate hike, many investors already want to skip ahead to the Fed’s March meeting. Monday could see some volatility in some popular stocks, as the past few days may be used by some fund managers for a little window dressing – selling laggards in favor of leaders to look like they’ve been on the right side of the market. .

This week, the economic calendar is packed with labor market reports, starting Tuesday with the JOLT, or job vacancies survey. The ADP non-farm payrolls report is released on Wednesday. Thursday, we will see the weekly jobless claims. Finally, the big jobs report known as the Jobs Situation Report will be released on Friday. Normally, analysts’ estimates of Friday’s job count fall in a relatively narrow range. Currently, they are everywhere, which is one of the reasons for the constant negativity.

Earnings season is in full swing, but there is still a lot to do. According to FactSet, 33% of companies in the S&P500 (SPX) reported. Of the companies that released a report, 77% beat analysts’ earnings estimates, which is above the 76% average. However, the average “beat” is about 4% higher than estimates, which is below the past five-year average of 8.6%. So what we’re seeing is that companies can’t just beat estimates, they have to crush them. Last week we saw Microsoft (MSFT) beat estimates and sold. However, after the MSFT conference call, they were able to present a solid plan for the future, and the price recovered.

Major stock indices traded higher on Friday with the Nasdaq Compound ($COMP) leads the rally and climbs 2.11%. the S&P500 (SPX) rose 1.56%, and the Dow Jones Industrial Average ($DJI) traded around 1% higher. The technology sector also led the rally with the Technology sector selection index up 3.4%, followed by the Real estate sector selection index at 2.5%, and the Index of Selected Health Care Sectors closed up 1.44%. Inflationary sectors, including energy and materials, were the only ones to end the day in the red.

However, weekly performance was a bit different. the Dow Jones Industrials was the top performer, closing about even for the week. the S&P500 was down about 1%. And the Nasdaq closed the week down about 2.5%. When you consider that the Nasdaq hovered between a 7% range for the week, it’s surprising that the index saw relatively little change. However, the Nasdaq is still on track for its worst January.

The energy sector was the only positive sector last week, with the Energy Selection Sector Index up 13.9%. On the other side, the Index of Selected Consumer Discretionary Sectors fell nearly 16% over the week. While all sectors other than energy were negative this week, the Technology sector selection index was the only other sector to post double-digit losses, falling almost 11%.

Apple (AAPL) continues to build its reputation as a flagship company by beating on earnings and revenue, then leading technology and heavy tech Nasdaq higher Friday. AAPL rebounded 6.98% on Friday and may have set the tone for its mega-cap peers this week, including Alphabet (GOOGL), Meta (FB), and Amazon (AMZN), all of which are in the income range.

Slow reaction times?

The Federal Reserve is being criticized for what some see as being too slow to react to faster inflation and rising interest rates. On Friday, BofA Global Research released a note suggesting the Fed should raise the overnight rate at each of the remaining seven meetings this year. At a quarter point each, that would set the overnight rate at 1.75% by the end of 2022.

While the desire for more aggressive rate hikes isn’t universally shared, a growing list of investors, economists and high-profile figures is pushing the Fed to be more aggressive. Two weeks ago, JP Morgan (JPM) CEO Jamie Dimon said the Fed is expected to hike rates 6-7 times this year. Allianz chief economic adviser Mohamed El-Erian criticized the Fed for not understanding the nature of inflation in 2021 and not reacting more quickly. Jefferies chief financial economist Aneta Markowska also criticized the Fed for not acknowledging inflationary problems and reacting sooner. Others, however, are less critical: Gennadiy Goldberg, senior U.S. rates strategist at TD Securities, pointed out that the changes have been so rapid that it’s understandable that inflation hasn’t been detected earlier, that the Fed readjusts to the information.

In December, Fed Chairman Jerome Powell said the Fed would target rate hikes of up to 0.90% by the end of 2022. Powell did not reiterate that target during the meeting. announcement of the January meeting or press conference. Instead, he opted to emphasize that the Fed would remain data-driven from meeting to meeting.

CHART OF THE DAY: I DO NOT FOLLOW. Monthly changes in the consumer price index (CPI—red/green) have led to changes in the federal funds rate (pink) over time. However, the Fed has been less responsive to the CPI over the past 10-13 years. FRED® is a registered trademark of the Federal Reserve Bank of St. Louis. The Federal Reserve Bank of St. Louis does not sponsor, endorse or affiliate with TD Ameritrade. Data sources: ICE, S&P Dow Jones indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Vigilante link: With the Fed slower to act on rising inflation, some market analysts are expecting a return of bond vigilantes. A bond vigilante is a bond investor who becomes increasingly frustrated with monetary and fiscal policies that fail to reduce the money supply or reduce government spending, so he sells his bonds in the money markets and makes raise interest rates.

In October 1993, bond vigilantes managed to push the 10-year yield from 5.2% to over 8% due to frustration with federal spending. The period became known as the Great Bond Massacre. The Clinton administration responded by passing legislation to cut spending.

Bond vigilantes may have resurfaced during the Eurozone crisis of 2009, when many European countries known as PIIGS (Portugal, Ireland, Italy, Greece and Spain) were borrowing and spending too much money. However, central banks may have managed to stave off the group.

There’s no way to tell if bond vigilantes will make a comeback in 2022. Although there was a lot of bond selling in December, the 10-year yield only rose from around 1, 4% to 1.8%. Additionally, inflation concerns have essentially halted President Joe Biden’s spending bill, Build Back Better, so vigilantes may not feel the need to return anytime soon.

Delicate situation: One of the reasons market participants are pressuring the Fed to raise rates is fear of higher oil prices. Oil prices tend to be cyclical, dropping in October as demand declines during the winter months when fewer people travel, then turning around in February when demand picks up. However, oil prices only fell for a short period towards the end of 2021 and then quickly rebounded.

According to Barronsmore and more analysts are forecasting oil prices to top $100 this summer, and many are forecasting much higher. Goldman Sachs (GS) issued a target of $105 for 2022 and projected higher in 2023. Morgan Stanley (MS) analysts target $110. Bank of America (BAC) analysts expect $120. Finally, JP Morgan (JPM) analysts expect a dizzying rise to $150. However, not all analysts see oil rising. Citigroup (C) Analysts believe oil prices will fall to $65 by the end of 2022 as many of the transitory inflation issues related to the COVID-19 pandemic pass.

Find out what factors could drive oil prices higher in my February outlook.

good trade,

not a word

@TDAJJKinahan

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