Good morning contrarians! Welcome to 2022. First trading day of the year.
As we know, 2021 was a banner year for stocks. If history is any guide then 2022 should be decent as well. Since 1950 when the S&P 500 returned 25% or more in a calendar year, stocks gained an average of 14% the following year. About eight out of 10 of those years were positive.
On the economic front, things look pretty good. Unemployment is low. The housing market is very healthy. Consumers are flush with cash and generally pretty confident. The only dark cloud is inflation and Federal Reserve rate hikes should take care of that. The only question is if rate hikes also put an end to economic growth, and when. I have my own views on this that you’ll have to listen to the podcast for (don’t feel like typing them).
Futures State of Play
Stock futures are pointing to healthy gains as of 0640. Small caps and tech are leading the way, which is usually a pretty good sign. The Russell 2000 is up 0.9%, followed by the Nasdaq which is up 0.8%. S&P futures are pointing to gains of 0.7% with Dow Industrials up 0.5%.
Bonds are selling off, keeping consistent with this risk-on mood. The yield on the 2-year is now 0.77%, up from 0.73%. Before Christmas it was down below 0.6%. The 10-year yield is up to 1.54% from 1.5%.
Commodities are a bit higher, with WTI crude up around 1% to trade around $76/barrel. Industrial commodities are pretty flat. Cryptocurrencies are flat as well, with bitcoin sitting on $47,200. That’s about where it’s been since Dec. 28.
Today’s Data
Not a huge day for economic data. Probably the biggest one isn’t until tonight, when the China Caixin Manufacturing PMI is released at 2030. Expectations are for an even 50 print, basically in line with last month’s 49.9 reading. China is still the manufacturing center of the world (mostly thanks to business from the U.S. and Europe) and a central cog in the global economy. Also, unlike a lot of data out of China, this is not from the central government but from Markit.
Speaking of manufacturing, ISM reports its PMI at 0945. Manufacturing is a much smaller part of the U.S. economy but may be worth watching anyway. Economists expect a reading of 57.8, so much healthier than the Chinese reading.
We also have U.S. construction spending at 1000. Expectations are for an increase of 0.6% month-over-month in November, an improvement on October’s 0.2%. This is another important cog in the global economy — the demand side, if you will.
The Bottom Line
It’s looking like a risk on day. Barring unexpected news we should move higher, perhaps even by significant margins.
Welcome to 2022: Daily Contrarian: Jan. 3