So much for the Santa Rally, as the Grinch, aka the Federal Reserve, released the minutes from the December meeting that indicated that the Fed recognized inflation and that it would act in 2022.
This sent investors selling high tech and moving to cyclical and value stocks.
The net result was the NASDAQ and S&P 500 stock-index performing much worse than the Dow.
The 10-year Treasury rate moved to above 1.75%.
This came ahead of the employment report Friday that reflected half the expected new jobs, but saw unemployment come in below 4%, which is the lowest since before the pandemic began in early 2019.
This week, we will have earnings reports from some of the biggest financials along with the hearings to confirm Fed President Powell.
Those hearings may provide more insight into the Fed’s plans for raising rates in 2022.
There is speculation that the Fed will start eliminating any easy money policies earlier than expected and more than three rate increases.
The highest flying stocks were punished the worst.
Cathy Wood’s Ark fund has dropped 45% in a short time, as it is loaded with high-tech companies.
I think what is happening is that many have significant gains and are taking their money off the table.
It will be interesting to see if the buying the dips works this time. This has been the methodology practiced for the last several years and has been profitable.
That is usually the case when bull markets end, as that which has worked finally plays out.
I don’t see this market turning bearish now with earnings coming in above expectations and I think that will be the case for several quarters.
What can happen, however, is that money rushing into the newest and greatest without real earnings and cash flow may fall from favor as we have seen recently.
One example of great earnings is Taiwan Semi, which reported a 35% jump.
So much for chip shortages and supply chain woes.
It is no different than the energy sector which finds crude prices pushing $80 for West Texas Intermediate.
One old indicator that I followed lately is the amount of stock bought and sold by executives of companies.
Many refer to this as insider trading. Don’t be confused, this is not illegal as it would be for someone to trade on information not public.
What we see is a significant amount of profit taking and executives buying more stock.
It is somewhat analogous to the company buying back its own stock rather than making further capital investments.
All it really tells you is that those working at the top levels of companies believe in the future of the company.
I believe that the rate increase will make great headlines, but they have a long way to go to get investors to move a significant amount of their investments to debt.
