January 4, 2022
Market Performance (YTD)
Source: YCharts
Disclaimer: Past performance is no guarantee of future performance
The Good News
Job openings remain historically high
Look for the release of the US #JOLTS data.
The number of job vacancies will shed light on whether the strong demand for labor is being met with some uptick in supply — thus also giving us a feel for what's likely to happen to wage pressures in the #economy.
(Chart via @WSJ). pic.twitter.com/Yca1L3lept
— Mohamed A. El-Erian (@elerianm) January 4, 2022
And here are the reasons why
Why people aren't working pic.twitter.com/kHNAsCWdLV
— Bruce Mehlman (@bpmehlman) December 31, 2021
And the quits rate remains historically high, too
Annual employee quits as a % of the workforce pic.twitter.com/Z0FbQPvnA0
— Bruce Mehlman (@bpmehlman) January 3, 2022
And households remain very healthy
Household debt as % of GDP declined slightly in 2Q21 pic.twitter.com/5JVVI09M92
— Mike Zaccardi, CFA, CMT (@MikeZaccardi) December 29, 2021
The Mixed News
Supply chain pressures remain high but could be easing
The New York Fed has come up with a new Global Supply Chain Pressure Index and it looks… pressured. https://t.co/QmwfZYKOi0 pic.twitter.com/gPMZAg4DG7
— Jeanna Smialek (@jeannasmialek) January 4, 2022
Some signs here from the IHS Manufacturing report that inflationary/supply chain pressures are peaking or starting to ease. https://t.co/vZWEzs6X59 pic.twitter.com/lRXNEatrPk
— Joe Weisenthal (@TheStalwart) January 3, 2022
The Bad News
OER has yet to make a huge impact on inflation.. think that’s coming soon
Good luck finding an apartment these days. pic.twitter.com/Q7PgTTV6fL
— Rick Palacios Jr. (@RickPalaciosJr) December 27, 2021
The State Of The Market
A good summary of 2021
Year-end recap 🧵
* A year where you wanted to keep portfolio offense on the field
* U.S. #stocks were the MVP, #Europe ok, EM struggled
* In #bonds, corporate credit a plus, duration a drag
* #USD up
* #Oil comeback player of the year#SPX500 sectors returns from @FactSet 👇 pic.twitter.com/hrwnFmZCAq— Matthew Miskin, CFA (@matthew_miskin) January 3, 2022
And the main story of the equity markets in 2021.. earnings growth
Of the S&P 500's 26.9% price return in 2021,
Earnings growth: 34.5%
Multiple growth: -7.6%Via JPM Guide to Markets pic.twitter.com/eHR9uRjEtr
— Sonu Varghese (@sonusvarghese) January 3, 2022
Good Morning Everyone! The S&P 500 started 2021 with a P/E ratio of 30x and ended with 23x. Why did the multiple contract? Because earnings grew 65% in 2021. The highest annual increase on record! pic.twitter.com/pE3pZFTCk0
— Genevieve Roch-Decter, CFA (@GRDecter) January 3, 2022
And margins were the biggest contributor to the strong earnings.. inflationary pressures?
if you look close enough, you can see the impact of share buybacks on EPS growth https://t.co/krVVSa8gue pic.twitter.com/AT8OcSlnrJ
— Sam Ro 📈 (@SamRo) January 3, 2022
And here are the leading contributors to the strong year for the S&P 500
Top 25 stocks driving S&P 500 index in 2021, via GS👇🏻 pic.twitter.com/fQBpgPfSH1
— JE$US (@WallStJesus) January 3, 2022
$TSLA made its first appearance on the “Top 5 stocks that contributed to $SPX annual performance” pic.twitter.com/RBzCZejofW
— Michael Antonelli (@BullandBaird) January 4, 2022
And here’s how the year faired compared to prior years
Annual S&P 500 returns from worst to best since 1928. Last year's 28.7% (blue) was about one standard deviation above the average of 11.6%. No one knows where 2022 will fall, but we do know that the range of outcomes below is WIDE. pic.twitter.com/K7WktVCVRy
— Liz Young (@LizYoungStrat) January 3, 2022
And how has the market typically performed after a really good year? Pretty well
S&P500 returns following +25% years… pic.twitter.com/nATutyEs0I
— Daniel Lacalle (@dlacalle_IA) January 3, 2022
And despite falling savings rates, there’s still a lot of money out there
Why are some people bullish on stocks in 2022 despite a forecast for multiple Fed rate hikes? This chart from @yardeni shows why. There remains an unprecedented amount of cash in the banking system. pic.twitter.com/eiLRvjApy7
— Rick Ferri (@Rick_Ferri) December 30, 2021
But one negative going into the new year, margin expectations seem to be flattening
if you're looking for a bear case:
12-month estimates for the S&P 500’s operating margins have stalled out since mid-Octoberhttps://t.co/dXCwvaynWZ via @markets pic.twitter.com/DePl3UKfWT
— Katie Greifeld (@kgreifeld) December 29, 2021
And lastly, be weary of short-term forecasts
I recently shared some Wall Street forecasts for the S&P500 in 2022.
This chart shows how bad banks' analysts have been at this exercise over the last 20 years: their forecasts had basically ZERO correlation with the subsequent year realized returns.
Embarrassing, really! pic.twitter.com/bn9cO4RCOJ
— Alf (@MacroAlf) December 28, 2021
Here’s a snippet from Howard Marks on the matter
“Obviously, nobody could have been expected to have predicted the pandemic. Ditto for the full success of the policy response or the timing and extent of the consequent market bounce. But Sommer shared longer-term data from Paul Hickey, co-founder of Bespoke Investment Group, which is more meaningful. I’ll mostly use Sommer’s words to convey the facts:
- Since 2000, the median analyst forecast has called for an average yearly return on the S&P 500 of 9.5%, whereas the actual average gain was 6.0%. You might say, “not bad, only off by 3.5 percentage points.” Or you might say, “terrible – the forecasters overestimated the average gain by 58% (9.5/6.0 – 1).”
- “Each December since 2000, the median forecast never called for a stock market decline over the course of the following calendar year . . .” (emphasis added). And yet the stock market lost money in six of those years.
- “In 2018, for example, the market fell 6.9 percent, though the forecasters said it would rise 7.5 percent, a spread of 14.4 percentage points. In 2002, the forecast called for an increase of 12.5 percent, but stocks fell 23.3 percent, a spread of almost 36 percentage points.”
- “All told, when gaps like that are taken into account, the median Wall Street forecast from 2000 through 2020 missed its target by an average 12.9* percentage points — which was more than double the [6.0%] actual average annual performance of the stock market. Year after year, these forecasts are about as accurate as those of a weatherman who always calls for balmy sunshine in a city where it rains or snows about 30 percent of the time. Some forecasts!” (* What accounts for the difference between the average error of 3.5 percentage points cited in the first bullet point and this 12.9? I assume the latter to be the average of the “absolute value” of the error. When you think in terms of absolute value, being too high by 3% in year one and then too low by 2% in year two means the absolute values of the errors add up to 5%, rather than netting out to only 1%.)
The bottom line is that hundreds or perhaps thousands of people make their living as professional market forecasters, despite the fact that the median forecast is of no value: wrong on average, positive in good years and bad, and way off target when an accurate forecast would have been most profitable.”
Source: Howard Marks (Oaktree)
Charts Of The Week
You can read this sentence 100x and still not quite believe it.
(via @jacknicas) @joannelipman $AAPLpic.twitter.com/VxMZqoww8I
— Carl Quintanilla (@carlquintanilla) January 4, 2022
This chart was very surprising to me
It’s easy to say Blackberry was always doomed, ex post. But they outgrew the iPhone for 4 straight years from 2007 to 2011. How many of us would’ve honestly looked at this chart in 2011, and said “yeah, I think Blackberry is going to zero”? https://t.co/l6c94nxQ0F
— Corry Wang (@corry_wang) January 3, 2022
It may not sound impressive, but the S&P 500 has traded higher “on just under 57% of all trading days this year. To put that in perspective, in sports betting, it's practically unheard of for any professional to have a consistent winning percentage of even 55%.” – @bespokeinvest pic.twitter.com/qgPV7QkK96
— Carl Quintanilla (@carlquintanilla) December 31, 2021
Read the headline.
The last time there was a forecast of negative 10-year returns was in 1999. Investors didn't get back to even on a total real return basis for 13-years.
h/t @ISABELNET_SA pic.twitter.com/8RsKCw5ZPt— Lance Roberts (@LanceRoberts) January 4, 2022
The Big 3 (iShares, Vgrd, State St) account for 70% of ETF flows, but the remaining 30% was worth $280 billion for the other ETF issuers this year. Its competitive but the pie is growing pic.twitter.com/FyDb5q36mX
— Athanasios Psarofagis (@tpsarofagis) January 3, 2022
1/ Great study from JP Morgan comparing annual closes with intra-year drawdowns. pic.twitter.com/XPwrgKQZJr
— Mark Ungewitter (@mark_ungewitter) January 3, 2022
Disclosure
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