2021-A Great Year for Stocks- How Did You Do? What’s Next in 2022? Read More Now
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December 30 2021 Option Professor Opinions & Observations
Happy New Years Everybody!
It was great year for stocks as we were up way more than 20% on SPX with 70 new record closing prices the most since 1995. How did we do it? Simple…the Fed increased the money supply by 25%-35% and kept interest rates at free Moneyville all year long. Companies got lean and mean during Covid (operating profits) and since money was stuffed in consumer pockets…revenues were great and earnings were even better. No all stocks did well in fact one of the problems now is the narrowing of breadth as most stocks in the Nasdaq and S&P are not making new highs with the index. If you chased the Cathie Wood type stocks in Q1 of 2021; you spent the rest of the year getting wiped out. We stuck with semis, large cap tech (FANG types), value dividend payers energy financials ect and they all came home with the bacon. Don’t fight the Fed and Don’t fight the Tape was our suggestion and that was insightful and helpful to all.
Now we have a horse of a different color in that the Fed is withdrawing stimulus vis tapering and may have to put on the brakes if stocks keep going and inflation keeps rising (supply chain glitches China shutting down cities-Samsung). GDP Growth has been huge this year and likely will be tempered with unresolved factors like lack of stimulus both fiscal and monetary, election year jitters, geopolitical & Fed error risks, and a consumer who may backtrack with higher prices. If valuations and profit margins contract; volatility will be the name of the game. The VIX just lost about half its value this month and the volume has dried up and market breadth is lousy….window dressing may be over soon. We saw this week that the harvesting of losses in high valuation stocks and China may be unwinding in January. We have seen banks slowing as the yield curve flattened. The majority seem to believe that after the first market liquidity will soar as sideline cash (positioning and Investor sentiment has been bearish) plus pension/insurance money/new year $$/retirement funds will pour into the markets and Q$ earnings will carry us up big time. The stampede of all stampedes will occur…maybe maybe not…keep an eye the SPX 4600-4650…VIX +20-25..if so..OUCH!
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