Where is Wall Street headed? It’s been a great ride since Biden was elected, but what next? Come on, crystal ball. Don’t disappoint me now. — South Dakota Standard
My readers know that I have been unyieldingly bullish on the stock market since Joe Biden was elected – and not just bullish but happily. My recurring meme has been that the market has done Donald Trump looks like a fool when he made this absurd claim during one of his pre-election debates with Biden. “The market is going to crash like you’ve never seen it before,” Trump warned on the consequences of a Joe Biden victory.
To the right. We all know what really happened. Not only did that extinction never happen, but the market rose sharply almost until the day Biden won. The Dow Jones Industrial Average opened at 26,925 on Election Day, November 3, 2020. This afternoon, January 18, 2022, it closed at 35,368.
Yeah, it turned out well. Like HE-double-L, it did. Did Trump understand something about this election, right? I mean, he still thinks he won.
I wonder if any of his supporters took Trump’s prediction to heart and sold all of his shares in preparation for this unprecedented crash that Trump expected. Did the man miss.
I will forgive you schadenfreude – and your attitude that it serves them well – if that’s how you feel right now. I admit myself a little pinch.
Meanwhile, the many cool heads in the investment world who may have seen Trump’s nonsense for what it was enjoyed one of the biggest bull market moves in history.
Which is fine, but as they say, that was then, this is now.
Where is the market going this year?
My thoughts are more based on trading experience (I was a member of the Chicago Board options exchange in the late 70’s to early 90’s and traded agricultural and financial futures here in the South Dakota for a decade after that) only technical and fundamental analysis. , which I’ll get to later when I recap what the big financial firms think. From a traders perspective, I think the market is moving sideways in a long period of consolidation, with some downward jerks in between.
The problem right now is interest rates, which generally move inversely to equities. In other words, when interest rates go up, stocks go down – and vice versa.
Right now, it looks like interest rates are going up for a while.
Given the stubbornness of the pandemic and its effects on supply chains causing shortages everywhere, a surge of inflation has hit the economy and simply won’t stop.
The Federal Reserve Board has generally taken the position that inflation is to be expected as consumers emerge from the economic meltdown that occurred when Covid-19 unleashed around the world. As the system recovered, people began to work again (note that the unemployment rate fell from a 2020 high of 6.7% to a 2021 year-end low of 3.9%), spending money on goods that have been in short supply as the production side of the economy did not follow the request.
So, voila, we had inflation figures that haven’t been this bad since the early 1980s. The Fed was a little optimistic about the ability of the supply chain to return to normal.
So what comes next?
It looks like the Fed will have to swallow its institutional pride, admit it got its inflation forecast wrong, and raise interest rates in order to slow inflation, essentially making it more expensive to borrow money. money for businesses and consumers. The economy will slow down somewhat as demand cools and gives producers and suppliers a chance to catch up with what the economy can accommodate. This is usually what happens during periods of inflation.
The stock market typically follows suit by turning sideways or even falling at such times, and there is no reason to expect it to be any different in 2022.
How far down? A ten to fifteen percent “correction”, as they call this type of sale, is not unusual.
I don’t think it’s dropping that much, and most of the major institutional advisers covered by Forbes. Just to name one, US Bank, because they have a big presence here in the Upper Midwest, the outlook is actually quite positive. The bank’s chief equity strategist, Terry Sandven, is targeting an 8% gain in 22. Tempering optimism, if you read the Forbes article, you’ll see that a correction en route to a close of A strong year-end is due, with the article noting that “a 10% to 20% decline has occurred about once every 19 months, on average, dating back to 1928.
This scenario seems quite plausible, but contrary to the optimistic projection made by analysts polled by Forbes, I am more inclined to think that by the end of the year the market would close at or near where it currently stands. . Primarily, the market is full of expectations for a resurgent economy, with stock prices at very high levels relative to corporate earnings.
I just think the market needs to take a break and let the economy catch up.
I would hold my stock and wait. As they said in the trading room, never bet against America.
John Tsitrian is a Black Hills businessman and writer. He was a weekly columnist for the Rapid City Journal for twenty years. His articles and commentaries have also appeared in The Los Angeles Times, The Denver Post, and The Omaha World-Herald. Tsitrian served in the Marines for three years (1966-69), including a 13-month tour as a radioman in Vietnam.