With just 8 weeks left until 2022, market forecasters are suggesting a strong stock market finish through year-end. The current momentum certainly is feeling as they are correct.
Last week the major US market indexes all climbed higher, with the Dow Jones rising 1.43%, the S&P 500 2.03%, the Nasdaq Composite 3.08% and the Small Cap Russell 2000 jumping 6.11%.
Foreign stocks also participated, rising 1.64%, however emerging markets continue to struggle, losing (.03%).
The leading sector, which should not be a surprise, is energy, rising 60% year-to-date. The leading stock asset category according to Morningstar, is Small Value, increasing over 35%.
Bonds and Inflation
Bond are attempting to digest a large dinner buffet. Last week the Fed announced they’ll begin scaling back on bond purchases this month. One would have thought, the yield on the 10-year US Treasury would rise, however the yield ended the week down @ 1.45%.
So far inflation is hitting the shorter end of the yield curve with the 2-year and other shorter term yields rising much more than longer term bond yields. My guess, this is reflecting the belief that inflation will end up being somewhat transitory. I don’t make predictions, however all of us are seeing what I call “ridiculous inflation,” starting to appear.
This morning I went on-line (Amazon) to reorder my morning pre-workout drink. The cost rose from approximately $11.50/pack to $19.95/pack (!!!). Prices are certainly rising pretty much across the board, however the consumer is flush with cash, so I do not expect rising prices to have a negative impact on the holiday shopping season.
The pace of rising prices will definitely need to subside in 2022. If prices and wages continue to rise, it will eventually impact corporate profits, employment and ultimately, the markets. Let’s hope the forces that are influencing the current levels of demand and supply stabilize. I do believe this will happen, however some bumpiness along the way should be expected!