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Market Strategy 12/20/2021

  • John Stoltzfus
  • December 20, 2021

Rock Steady Revisited

Don’t jump to conclusions and don’t forget which asset classes and sectors “brung ya to the dance”
Key Takeaways
  • Stocks first moved higher, then moved lower after the Federal Reserve pivoted to address inflation that has persisted for a longer time and run at a higher pace than officials expected.
  • The bond market rallied last week in part we’d expect in consideration that the Fed’s pivot was adequate to address inflation over the near term.
  • Economic data last week was mixed with housing demand strong while retail sales disappointed.
  • This week, we look at Treasury yields since 1966 and the CRB’s commodity index since 2006 which in our view suggest that secular counter-inflationary trends remain in place.

We suggest that investors not let near-term uncertainty obfuscate progress being made as the central bank adjusts monetary policy to meet higher than expected inflation and as the US and global economy navigate current challenges to reopenings posed by COVID-19 variants and supply chain disruptions.

In our view, the noise stemming from negative projections coming from some traders, skeptics, bears and fear-mongers of late should not obscure the signals of progress that have been made societally and economically since the pandemic struck globally in March 2020 through to the current day.

Central banks, businesses, labor, consumers, and even politicians (gasp) have shown up and met the challenges in their path thus far with science, technology, monetary policy, fiscal policy, and a strong desire to get to—if not to the “new normal” we had come to know after the Great Financial Crisis—what we’ll call “the next new normal” likely to follow the pandemic of COVID-19 and its assortment of nasty variants.

Last week saw stocks stateside rally first on news coming out of the Fed’s FOMC meeting announcing a quicker approach to tapering (3 months vs. 6 months) with upward tweaking to the benchmark rate (the fed funds rate) to follow after the taper is completed in March.

Quotation from Aenean Pretium

We take a pause to recognize the irony that the market, which had been so worried about the current upswing in inflation, became so apparently concerned last week that the Fed had pivoted to address inflation with a degree of vigilance that could well place inflation in check sooner than later.

The stock rally faded later. Investor enthusiasm was curbed by reports of surges in cases of the Omicron variant, risks to re-openings of local economies and what is likely some near term softness in retail sales data that was released last week.

The jump in uncertainty gave rise to what we often term “a catalyst for bears, skeptics and nervous investors to take some near term profits without FOMO (fear of missing out)” amid the process of the current bull market that emerged from the pandemic-driven S&P 500 low on March 23rd of 2020.

Once again, we would suggest that investors “look for babies thrown out with the bathwater” (stocks with attractive fundamentals caught up in the sell-offs that can occur in a market prone to rebalancing on a week-toweek---even a day to day—basis).

Investors heading into the office this week or logging in from home will find a holiday-abridged week ahead. Stateside markets are closed on Friday for the Christmas holiday.

Trading is expected to be light this week, but a number of economic data points are scheduled for release. These date include: the Conference Board’s Leading Economic Indicator, consumer income, new home sales, durable goods, the PCE deflator, the University of Michigan Consumer survey, and initial jobless claims.

We take a pause ahead of this pre-holiday week to recognize the irony that the market, which had been so worried about the current upswing in inflation, became so apparently concerned last week that the Fed had pivoted to address inflation with a degree of vigilance that could well place inflation in check sooner than later.

We also take note that as we publish this weekly tome, equity futures appear to point to respective lower openings as markets display some concern that what has been considered by more than a few a proposed oversized spending bill pending in Congress has not found enough support to be voted on ahead of yearend.

Guess some people are never happy.

Give peace a chance.

John Stoltzfus headshot

John Stoltzfus


Chief Investment Strategist, Oppenheimer Asset Management Inc.

John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.

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