Stocks could benefit from the tailwind of 2021 into the new year, but jobs report and the Fed will be the focus of attention

It’s back to business in the coming week with a busy economic calendar to start the new year, including the ever-important monthly jobs report.

After a stellar 2021, stocks are heading 2022 with a tailwind, but the market price in the new year will depend more on solid earnings growth and a strong economy than a super easy Federal Reserve.

The S&P 500 rose 27% to 4,766 in a record year, hitting 70 record closing highs. The benchmark index topped the 19% gain in the Dow Jones Industrial Average and the 21% rise in the Nasdaq Composite.

With Monday’s opening bell, the clock starts ticking for a quarter that could see the Fed’s first rate hike since 2018. In the bond market, concerns about the latest omicron Covid-19 variant could give way to an investor community more prone to a reset of expectations about the direction of interest rates during 2022.

The jobs report is the biggest piece of a calendar that also includes data from the ISM auto manufacturing and sales survey, both scheduled for Tuesday. International trade data is released on Thursday.

According to Dow Jones, economists expect 405,000 jobs to have been created in the last month of 2021, up from 210,000 in November. The unemployment rate is expected to drop from 4.2% to 4.1%.

“It’s the start of a new year. History will tell you we should kick it off in a pretty strong way, especially since we’ve seen this kind of gradual correction,” said Sameer Samana, strategist. senior in global equities at the Wells Fargo Investment Institute. . “We like that the S&P has hit new highs, but when you look at mid-cap stocks or small-cap stocks, they’ve had a very different experience.”

The 2021 market was forked with an initial surge in some high growth stocks, but many of those names then fell hard, and some of the large cap names in the S&P 500 performed overloaded.

Microsoft grew 51% for the year, while Apple gained 34%. Home Depot rose 56% and American Express gained 35%. Ford rose 136%.

The ARK Innovation ETF, a top-flight collection of growth stocks in 2020, fell 24% for the year.

Fed in advance

On Wednesday, the Fed will release the minutes of its December meeting. Following this meeting, the central bank announced that it would accelerate the reduction of its bond purchase program worth $ 120 billion per month, which now ends in March instead of June. . The March meeting is now seen as the Fed’s first opportunity to hike rates. The Fed has planned three for 2022.

“I think next week people will start to adjust to this changing monetary landscape. It’s a big deal,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “The cash flow over the past two years has never been seen before.”

Strategists expect 2022 to be more turbulent for the stock market, as the Fed ends its bond purchases and prepares to raise interest rates from zero. Stock market strategists have a median target of 5,050 for the S&P 500, according to CNBC’s strategists survey.

Boockvar said the impact of the tightening policy will be felt globally, as other central banks also scale back their asset purchase programs and move towards raising interest rates.

“This cash flow is slowing down and we know how useful it has been,” Boockvar said. “You cannot separate a Fed tightening cycle from the stock market. You cannot separate the market. They are all linked. Nothing like this can avoid tighter financial conditions.”

Samana of Wells said he is focusing on the quality of US large cap stocks for the new year. “You have to take what the market gives you and what it gives you now is that there isn’t a whole lot of reason to stray away from US big caps,” he said. “We love technology, we love communications services. We love financials and we love industrials. Two growth sectors and two cyclical sectors. We’ve narrowed it down to anything but defensive.”

Samana said Wells strategists had downgraded the materials and energy sectors. At the same time, they have improved the technology. “We want to have a much more balanced position by 2022, we just don’t know what opportunities will present themselves.”

Energy was the best performer of the major sectors in 2021, up 48%, its best ever increase. It was followed by real estate, which jumped 42%. Technology grew 33% and financials gained 33% as well.

Miller Tabak’s Matt Maley pointed out that the Consumer Staples Select Sector SPDR Fund outperformed technology and semiconductors in December. The fund rose nearly 10%, while the Technology Select Sector SPDR fund gained 3% over the month.

“In other words, this action in the stock market over the past few weeks has been very different than it seemed to a lot of people. We haven’t seen a merger… and tech stocks haven’t. not doing as well as most people think, “Maley wrote in a note. “More importantly, one of the more defensive groups in the market has been the one that rallied well. In our opinion, this tells us that investors are quite worried about the effect that the new round of tightening (more aggressive) the Fed could have on the stock market next year. “

OPEC + actions have been a major factor in the development of oil prices and oil inventories over the past year. Futures on West Texas Intermediate rose about 55% in 2021.

OPEC + meets on Tuesday and is expected to continue its policy of gradually returning oil to the market.

Calendar for the upcoming week

Monday

9:45 a.m. Manufacturing PMI

10:00 am Construction expenses

Tuesday

Earnings: MillerKnoll

Vehicle sales

10:30 am ISM manufacturing

10h00 JOLTS

Wednesday

8:15 am ADP job

9.45 a.m. PMI Services

2:00 p.m. FOMC minutes

Thusday

Earnings: Bed Bath and Beyond, Constellation Brands, Conagra, Walgreen Boots Alliance, PriceSmart, WD-40, Lamb Weston

8:30 am Initial complaints

8:30 am International trade

10:00 am ISM Services

10:00 Factory orders

1:15 p.m., St. Louis Fed President James Bullard

Friday

8:30 am Employment report

10:00 a.m. San Francisco Fed President Mary Daly

12:15 p.m. Raphael Bostic, President of the Atlanta Fed

12:30 p.m. Richmond Fed President Tom Barkin

3:00 p.m. Consumer credit

Saturday

12:15 p.m. Atlanta Fed Bostic