Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.
Happy New Year!
I do not always set New Year’s resolutions, but this year there is one that I want to share. I resolve to be increasingly discerning of my media diet. The entire business model of corporate news and social media is to keep eyeballs glued to screens. It turns out the best way to increase engagement is with fear and outrage. These two emotions are anathema to maintaining a healthy mindset and long-term investment prospective. As an example, there was a story picked up by cable news two weeks ago misstating that the Omicron variant of Covid-19 was as virulent as Delta. Sure enough, the stock market sold-off as one would expect. It turned out that market-moving report had a sample size of just twelve people. This type of fear-inducing hyperbole is cable news gold, and they have massive incentives to break the story early without much due diligence or perspective. The adage “if it bleeds it ledes” comes to mind here. No doubt, the large increase in Covid cases will hit economic growth, but judging by recent high frequency data, the impact so far has not been significant. The steep decline in infections in South Africa significantly increases the odds the Omicron variant will peak within a month. This paradigm is one of the reasons the stock market has rallied over the past few weeks.
Here are ten reasons we are maintaining our bullish positioning:
- Massive monetary stimulus is still working its way through the system
- Rapid growth in the money supply
- Unprecedented surge in consumer wealth
- Economic momentum, i.e. the virtuous cycle
- More reopening of the economy is coming
- Supply chain problems are easing
- Excess consumer savings will be invested or spent
- Inventory rebuilding
- Strong corporate earnings
- Higher wages help consumer spending
When it comes to stocks, there will always be something to worry about; however, if your time horizon is more than seven years, owning stocks is still one of the best ways to generate long-term wealth. My resolution for 2022 is to stay positive and test negative.
This week we will get a plethora of data on the tight domestic labor market, which is a key component to the inflation picture. We expect a moderate gain of 600,000 for payroll employment in December. The unemployment rate likely fell to 4.0% after falling sharply to 4.2% in November.
Data deck for January 3–January 7:
|
Date |
Indicator |
Period |
|
Jan 3 |
Markit manufacturing PMI (final) |
Dec |
|
Jan 3 |
Construction spending |
Nov |
|
Jan 4 |
ISM manufacturing index |
Dec |
|
Jan 4 |
Job openings |
Nov |
|
Jan 4 |
Job quits |
Nov |
|
Jan 5 |
ADP employment report |
Dec |
|
Jan 5 |
Markit services PMI |
Dec |
|
Jan 5 |
FOMC minutes |
|
|
Jan 6 |
Initial jobless claims (regular state program) |
Jan 1 |
|
Jan 6 |
Continuing jobless claims (regular state program) |
Dec 25 |
|
Jan 6 |
Trade deficit |
Nov |
|
Jan 6 |
ISM services index |
Dec |
|
Jan 6 |
Factory orders |
Nov |
|
Jan 7 |
Nonfarm payrolls |
Dec |
|
Jan 7 |
Unemployment rate |
Dec |
|
Jan 7 |
Average hourly earnings |
Dec |
|
Jan 7 |
Consumer credit |
Nov |
