Don't Fight The Fed

One of Wall Street’s long-time axioms is, “Don’t fight the FED” (Federal Reserve Board). In other words, when the Central bank is raising interest rates and increasing borrowing costs, it is being done to dampen a strong economy and high inflation. The desired result is an economic slowdown which generally, of course, is bad for equities. With expectations of anywhere from five (consensus) to seven (Bank of America’s prediction) interest rate hikes in 2022, one would think investment caution would be the game plan.

I propose to you the FED may well be on the wrong tack and is fighting yesterday’s battle. Some points to ponder follow, and if anyone wants a more lengthy discussion by all means give me a call.

Inflation –Yes, it was high last year, 7%, a 39-year record. But what about this year? Consider a few key points:

  • Omicron causing a huge dent in consumer spending at every level.
  • Supply chain issues continue; if you can’t find it - you cannot spend it.
  • The biggest impacts on inflation were things like automobiles, lodging, and building supplies. It is difficult to see the same percentage increase in price in 2022, hence, lower year-over-year inflation numbers.
  • However, note some key supply chain issues are easing – steel being a noticeable one. Reports are coming out that much of the strong US economic growth in the 4th Qtr. was due to a huge buildup in inventories.
  • The Atlanta office of the Federal Reserve Board provides a lot of economic forecasts and their latest one anticipates a 1st Qtr. GDP growth of 0% – a borderline recession. Is the US going from a shortage to a glut?
  • Economic growth outside the U.S. has slowed markedly, running about one-third lower than earlier in 2021. Growth in some important economies, like China and Japan, is significantly weaker.

I could go on, but the bottom line: Is the FED planning to raise rates aggressively at precisely the same time the economy is slowing? They were forced to pivot on “transitory”; will the next pivot be a reversal of planned rate hikes? Thus, could a large part of the selloff in equities this year be, not because of fears of rising rates, but rather uncertainty over a possible looming economic slowdown affecting revenues and profits in many sectors? Remember, the price action of equities is always way ahead of a company’s financial numbers and way, way ahead of the analysts’ forecasts!!

While stocks ended a roller-coaster week on a high note as a strong earnings report from Apple helped technology stocks rebound, nevertheless most major markets and sectors extended their losses for 2022. Energy prices were higher for obvious Ukrainian reasons. As a result, oil stocks did help the TSX eke out a small gain. However, the Loonie fell over 1.5%, in line with most foreign currencies, as investors decided maybe the US dollar was a safer haven for a while.

As I have stated before, I expect a volatile first half of the year for financial markets, but a much better second half, especially if the FED is forced to tone down its rate hike rhetoric.

July 5,2021- On The Move

June 28,2021- Audi Makes A Big Bet

June 21, 2021 - Head-Fake???

June 14, 2021- Big Bets!

June 7, 2021 - Mixed Messages

May 31, 2021-Positive End to Volatile Month

May 25, 2021-Time To Get Off The Teeter-Totter

May 17, 2021 - Transitory

May 10, 2021 - Lucky it Wasn't SuperBowl Week!

May 3, 2021 - Supply Chain-- This Year's Buzz Phrase?

April 26, 2021 - Tax The Rich

April 19, 2020 - New Highs

April 12, 2020 - Millions vs Trillions

March 29, 2021 - Saved At The Bell

March 22, 2021 - The 'Oh-No' Team Edges Ahead

March 15, 2021 - FOMO VS OH NO!

March 08, 2121 - WFH to .....

March 1, 2121 - Rising Rates Scare

February 22, 2021- A Healthy Rotation?

February 16, 2021 - The Debt of Reckoning

February 8, 2021 - For The Graduate - It's Batteries!

February 1, 2021 - Stop The World

January 25, 2021 - SPACS - Zoom or Swoon??

January 18, 2021 - Switcheroo?

January 11, 2021 - Breakthrough

December 21, 2020 - Didn't!!

December 14, 2020 - A Pause Before Christmas

December 7, 2020 - Main ST. & Wall ST. Diverge

November 30,2020-AAS Revisted

November 23, 2020- Ground Hog Day

November 16, 2020 - Vaccine Pop

November 9, 2020- The American Way

November 2, 2020- PPE

October 26, 2020- Crunch Time

October 19, 2020 - Counting

October 13, 2020 - Shake It Off!!!

October 5, 2020 - The Line Holds For Now - However!!

September 28, 2020 - It's All About 3 Key Words

September 21, 2020 - A Second Wave?

September 14, 2020 - Not A Lot To Cheer About

September 9, 2020 - Hump Day then Thump Day

August 31, 2020 - ASA Coming To The Fore

August 24, 2020 - The Debate Intensifies!

August 17,2020 -Potpourri

August 10, 2020- When Bad News is Good News

August 4,2020 - Three Records of Note

July 27, 2020 - Vaccine Vs Virus - Round 2

July 20, 2020 - Vaccine Vs Virus-Fight On!

July 13, 2020- A Week of Highs & Lows

July 6, 2020 - Economy VS Covid Cases

June 29, 2020 - A Bridge Too Far

June 22, 2020 - What Me Worry?

June 15, 2020-Reality Check??

June 8, 2020- It's All About The Workers

June 1, 2020 - Can We Bank on The Banks??

May 25, 2020- A Very Good Week For Stocks

May 19, 2020- Hedgehoppers Anonymous

May 11, 2020 - Was Monty Python Right?

May 4,2020 - Balancing the Teeter-Totter

April 27, 2020 - Oil - Another reason...

April 20, 2020- The Curate's Egg

April 13, 2020- Governor Cuomo Knows Best

April 6, 2020-  Stock Markets - It's a Teeter-Totter

March 30, 2020 - Stuck Like Glue

March 23, 2020-As Always, Bob Dylan Has The Answer

March 16, 2020 - Show Me The Money

March 9, 2020 - Interest Rates-The Race to Zero

March 2, 2020 - The Unknown Unknowns

February 24, 2020 - It's Always The Unexpected

February 18, 2020 - Oh (Dear!) Canada

February 10, 2020 - Sick Or Not I'm Going To Work

February 3, 2020 - A Turn For The Worse

January 27, 2020- Run For The Exits!!

January 20, 2020 - All Aboard!!!

January 13,2020 -  The Year That Was - A Wall of Worry

December 16, 2019 - Dear Santa

December 9,2019 - Those Who Live by The Tweet...

December 2,2019 - Taylor Swift

November 18, 2019 - Like The Duck in the Pond

November 11, 2019 - A "RISK ON" WEEK

November 4, 2019 - What About The Workers?

October 28, 2019 - Trick or Treat

October 21, 2019- The Gains Continue

October 15, 2019 - All We Are Saying.....

October 7, 2019 - Saved By The Workers!!

September 30, 2019 - Second Verse Same As The First!!

September 23, 2019 - About Face!

September 16, 2019-UP In Smoke

September 3, 2019 - The Sleeping Giant is Awake

August  26, 2019 -WOW!

August 19, 2019- "Do I Feel Lucky? Well,do ya, punk?"

August 12, 2019- Recession Rumblings

August 6, 2019-Coin Toss Part 2 - It came up HEADS!! = Bonds

July 29,  2019 - THe US Economy and Stocks (still) Lead The Way

Coin Toss- HEADS = Bonds  TAILS = Stocks

A Short USA Holiday

July 2,2019 - A Friday Rally Helped Cap An Impressive Month of Gains

June 24 - The Only Missiles Launched last Week were Financial Ones!! Whew!!!

June 17 - The Calm Before The Storm

June 10, 2019 - The Powell Put #2

May 29, 2019 - What To Do For An Encore

May 27,2019 - Let's Make A Deal

May 13, 2019 - When Elephants Fight