Halyard’s Weekly Wrap – 01/21/22
Happily, there’s been a dearth of Central Bank speeches this week, and that’s been mostly good for the bond market. Last week the investment community worked to digest the possibility of four rate hikes this year. We remain skeptical that the Fed is able to endure the pressure such a string of rate hikes would exact on the equity market. In fact, we wonder how the fed is feeling about the 7% year-to-date drawdown of the S&P 500. At any rate, we’ll know next Wednesday afternoon as the Fed concludes their first Open Market Committee meeting of the new year. As we’ve written recently, historically the Fed, having admitted that inflation has proven more stubborn than anticipated and with an economy going gangbusters, would tighten policy immediately. And there will likely be a member or two who will suggest such a course of action next week. But we fully expect a unanimous vote in favor of holding policy steady with an intention to raise rates in March. As usual, aside from one or two pointed questions, the cadre of reporters at the press conference are unlikely to make the Fed Chairman squirm with their line of questioning. If anything, this should be one of the Chairman’s easier press conferences.
Also on the calendar next week is the Advanced “guesstimate” of Q4 2021 GDP. Consensus expectation is 5.3% annualized growth, but there is the possibility of a sizable miss. Consider the auto industry year-over-year sales plunged during the quarter, and supply chain shortages continue to wreak havoc on inventories. On the flip side, consumer demand remains robust and retailers are loathe to put anything on sale. The price index of GDP is expected to remain elevated at 6.0%. Regardless of the outcome, the results are unlikely to dissuade the Fed from commencing it’s tightening cycle.
Finally, earning season has started in earnest with a mix of upside and downside surprises. We’ll continue to study the results, looking for clues to the state of the economy.
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