December 21, 2021

Market Performance (One Week)

Source: YCharts
Disclaimer: Past performance is no guarantee of future performance

The Good News

GDP growth is very high

US GDP growth poised to be best since 1984's +7.24% pic.twitter.com/8AWbGVNUKa

— Mike Zaccardi, CFA, CMT (@MikeZaccardi) December 21, 2021

And leading economic indicators remain very strong

LEADING indicators unexpectedly strengthen and actually accelerate a bit. #Omicron is today’s focus but the #LEI has rarely been this strong in the last 60 years. pic.twitter.com/3j5JUgii4Q

— Richard Bernstein (@RBAdvisors) December 20, 2021

LEI is up 9.4% so far this year, which is fastest annual gain since 1983 pic.twitter.com/YZ8z2n6MGJ

— Liz Ann Sonders (@LizAnnSonders) December 21, 2021

The Bad News

Investor sentiment continues to fall 

Since the emergence of Omicron and the Fed's hawkish pivot, investor sentiment has not surprisingly taken a bearish turn. pic.twitter.com/zCBAUCJ7nL

— Liz Young (@LizYoungStrat) December 17, 2021

And this doesn’t seem good

‘By the end of Nov., 33% of leveraged loans issued in 2021 had a ratio of debt to earnings that exceeded 6x, breaching a threshold set by the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation.’ https://t.co/IPf7ixMwmL pic.twitter.com/S0eZ8gAPZy

— Jesse Felder (@jessefelder) December 16, 2021

And I guess that shouldn’t be too surprising as global debt increases at a record pace

Historic increase in global debt last year@IMFNews pic.twitter.com/oUkpbv3obG

— Liz Ann Sonders (@LizAnnSonders) December 16, 2021

And mergers & acquisitions are setting records

2021: most M&A deals ever pic.twitter.com/Gjr9sUP4o5

— Bruce Mehlman (@bpmehlman) December 18, 2021

The State Of The Market

The Fed didn’t really surprise the market last week

Mini recap of the Fed meeting

– Will keep interest rates at 0.00% to 0.25%,
– Removed "transitory" to describe inflation
– Doubling rate of taper to $30 billion/month
– Plans to hike interest rates 3 times next year
– Stocks have now turned green on the day

— Morning Brew ☕️ (@MorningBrew) December 15, 2021

One interesting note: Powell levels the wage conversations

Powell says wage growth has not been a major contributor to inflation

— Joe Weisenthal (@TheStalwart) December 15, 2021

But still reason to believe that’s still coming

NFIB #SmallBiz Survey shows a wage-price spiral forming. #Compensation plans remain in record territory and plans to raise prices hit another all-time high. pic.twitter.com/JRVuoAaxlh

— Richard Bernstein (@RBAdvisors) December 14, 2021

And the strong economic rebound has led a rally in the dollar, far greater than many thought at the beginning of the year

Coming into 2021, few expected the #dollar to continue rising, but a stronger than expected economic rebound has pushed the dollar up relative to most other major currencies. pic.twitter.com/fT6qA67jVW

— Kathy Jones (@KathyJones) December 17, 2021

The dollar is poised for its biggest annual gain in six years. Investors are betting the currency will continue to strengthen, with positioning in the currency turning the most bullish since 2015: BofA survey https://t.co/OkgglipxmW

— Lisa Abramowicz (@lisaabramowicz1) December 16, 2021

But the market doesn’t think the Fed can actually reach their targets

The market still doubts the Fed's ability to get very far with rate hikes. Blue line shows the market's expectation–not past 1.5% by 2025. The median Fed projection (white) is three hikes each in 2022 and 2023, and then two more in 2024. Significant gap. pic.twitter.com/0ok5QPNbRt

— Liz Young (@LizYoungStrat) December 16, 2021

And the yield curve is flattening quickly 

Curve flattens as the Fed is seen as more #hawkish than expected. #FedDay pic.twitter.com/xPiWT5wtSY

— Kathy Jones (@KathyJones) December 15, 2021

But high yield spreads seem to be shrugging the worries off for now

Nothing like the smell of credit spreads in the morning!

Keeping an eye on U.S. high yield spreads to see if there are more serious #economic & liquidity #risks into year end. HY spreads are 3.10% vs. 6% to end 2015 & 5% to close 2018.

No risk-off signal here yet…@FactSet pic.twitter.com/VkYNuit7x1

— Matthew Miskin, CFA (@matthew_miskin) December 21, 2021

Charts Of The Week

Hong Kong’s main stock benchmark is trading below book value. Yup, the entire index. pic.twitter.com/O4eKl5se1D

— David Ingles (@DavidInglesTV) December 14, 2021

A reminder that market cap weighting is suboptimal….

via @KKR_Co pic.twitter.com/evWgZlPl2G

— Meb Faber (@MebFaber) December 20, 2021

(1/2) The market-cap weighted S&P 1500 Index has returned 24% over the last year, but is down just 3% from its 52-wk high. While a simple average shows the underlying stocks are 18% below their 52-wk highs. Large cap = less pain recently. pic.twitter.com/pkeXSEjHCo

— Liz Young (@LizYoungStrat) December 20, 2021

Chart shows what we already suspected, that outside of the top-10 stocks in the index, most members underperformed.
h/t @thedailyshot pic.twitter.com/qIeOlcKt5O

— Lance Roberts (@LanceRoberts) December 20, 2021

“every previous occasion on which the benchmark fell more than 20% from an all-time high … as the graph makes clear, the past 667 days stand in a league of their own” @SPDJIndices pic.twitter.com/A1vGw4mGh5

— Sam Ro 📈 (@SamRo) December 20, 2021

Why it’s so difficult to pick market beating stocks in one statistic.

“According to S&P Dow Jones Indices, only 22% of the stocks in the S&P 500 outperformed the index itself from 2000 to 2020.”

H/T @SamRo’s TKer pic.twitter.com/yOyVKuj2A3

— Conor Mac (@InvestmentTalkk) December 19, 2021

Wow, the Three Amigos (SPY, IVV, VOO) have taken in nearly $100b between them this year, that's nearly double their old annual record as a team. My lord. h/t @ToddCFRA pic.twitter.com/uF1QPUg4Bc

— Eric Balchunas (@EricBalchunas) December 15, 2021

Disclosure

Clear Rock Advisors, LLC is registered with the SEC as a registered investment advisor with offices in Texas. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by Clear Rock Advisors, LLC) or any investment-related or financial planning consulting services will be profitable, equal any corresponding indicated historical performance level(s), or prove successful. It remains the client’s responsibility to advise Clear Rock Advisors, LLC, in writing, if there are any changes in the client’s personal/financial situation or investment objectives for the purpose of reviewing, evaluating or revising Clear Rock Advisors, LLC’s  previous recommendations and/or services, or if the client would like to impose, add to, or modify any reasonable restrictions to Clear Rock Advisors, LLC’s services. A copy of Clear Rock Advisors, LLC’s current written disclosure statement discussing its advisory services and fees are available upon request.