Posted on 01/08/2022 7:30:51 AM PST by Browns Ultra Fan
People Get Ready! There’s a train a coming. Its called The Federal Reserve.
The market is pricing in 3 rate increases in 2022. And perhaps a faster than expected withdrawal of balance sheet stimulus.
As a result, The Russell 2000 Growth index is plunging (orange line) relative to the Russell 2000 Value index (white line) which is down in 2021.
The Société Générale (SGI) US value and “quality” indices are telling the same story. The SGI US “Quality” index is falling like a paralyzed falcon while the SGI US Value index is up for 2022.
It is somewhat mystifying that markets would be soooooo sensitive to 3 rate increases from The Fed, particularly since the Taylor Rule suggests that The Fed’s target rate should be 17.36%. Even if you don’t like the Taylor Rule or disagree with its inputs, you must admit that the gap between where The Fed is (0.25%) and where they should be (17.36%) is … k-razy.
But here is where we sit.
(Excerpt) Read more at confoundedinterest.net ...
You’re right but to be fair the mega-stimulypto began in March 2020 when Trump was still in office.
I get that growth and value stocks do not move in tandem. But they are now mixed together in many mutual funds. So I’m guessing when the pullback comes, both with drop by relatively the same amount.
In other words, value stocks will not be much of a save haven.
Just my three cents.*
* Bumped up from “just my two cents” due to Biden inflation.
That’s a good observation, but I would say there are more growth stocks “hidden” in so-called value funds than the other way around.
I have a deep value fund that is doing well because it is totally invested in value, distressed situations, and arb plays. There’s no apparent allocation to growth.
I have another “value” fund whose top two heavily weighted holdings are clearly growth companies.
So to your point, some funds may not prove to be the havens hoped for.
National debt is now $29.7 T. At the rate its climbing its hard to imagine what it will be at year’s end.
Does anybody really believe the Fed is going to strictly taper and jack interest rates up next year? Obviously they “should” in order to tame inflation but doing so will tank the economy and seal the Democrats’ fate not just for 2022 but for 2024 as well. We’re talking an epic wipeout of Democrats here.
Obviously the Fed is going to be under enormous pressure not to follow through and I don’t believe for a second that they will.
Does anybody really believe the Fed is going to strictly taper and jack interest rates up next year?
Don’t forget, interest payments on 29.7 trillion will consume more of the governments operating budget to service that debt. They can’t afford to raise too much IMO.
Probably right. But…. Market always goes up over time. Nobody will say “today is the highest it will ever be”. If you are retired like me….move some to fairly priced utilities paying 5 to 7% dividends and ride the year out……if a person is worried.
I’m taking your observation with a ton of salt. 🙄
They can’t afford to raise too much IMO.
They?
value and defensive stocks, stay away from interest rate sensitive and traditional growth. Biden’s economy is going to be like Carter’s.
I’m pretty much with you except that they will try to sit on the fence with half measures that will just put the market on the fence with them.
Nobody is going to make any bold and necessary moves. Everything is just politics now.
“ index is falling like a paralyzed falcon”
That’s just plain goofy is that the best they can do? 🤪
Paying with dollars that have inflated more than the interest increase should do it.
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