SFM Observer - December 2021
Issued: January 4, 2022
The Dow closed the month of December at 36,338 for a rally of 1,855 points or 5.4%. This yearend gift is called the Santa Claus rally on Wall Street and typically occurs at the end of December. Who says there is no Santa Claus? On the other hand, the Federal Reserve (aka the Grinch) tried to kill the rally with the proclamation that they are draining the easy money punch bowl just as the party is getting started. They stated that the monthly bond buying program they have been implementing for the past few years (which injects money into the financial system) is being tapered off over the next few months. After the taper is complete, it is expected that the Federal Reserve will then start raising interest rates in an effort to curb inflation and let the economy find its own path without monetary assistance.
On the scoreboard, the S&P 500 returned 26.9% for 2021 and the Dow Jones returned 18.7%. The S&P returned more because it is dominated by the large tech companies like Tesla, Facebook, Amazon and others that are not part of the Dow Jones Industrial average. Technology companies are becoming a bigger and bigger part of the stock market. The NASDAQ composite returned 21.4% and the bond market suffered in 2021 with a loss of -1.6% based on the Morningstar U.S. Core Bond index. Rising rates during the year coupled with a very low beginning interest rate (0%– 1.5%) created a losing year for index bond investors.
Some interesting events from the month and the year just closed:
• Lithium is a potential bottleneck in the race to convert the automobile fleet to electric vehicles. Although the earth contains plenty of lithium, mining it and refining it into battery grade lithium is expensive and time consuming. Right now, China is the biggest producer and the U.S. does not want to rely on China for a steady supply. Environmental groups make lithium mining difficult in the U.S.
• Bruce Springsteen sold his music rights to Sony for over $500 million dollars. I bet Bruce is happy that he was “Born in the U.S.A.” which is one of his hits he sold to Sony.
• We have 11 million job openings and only 6.9 million people looking for work. That is one of the reasons you have to wait in line everywhere you go. The largest component of the 11 million jobs are in the service sector where the shortage of people is evident to the general public.
• Inflation hit 6.8% in November on a year over year basis. This is a surprisingly strong number after we have gone the past 25 years with modest or no inflation. A few years ago, deflation was the big worry and now the pendulum has swung in the other direction. Cars, groceries, housing, restaurants and energy are all sectors that have seen a big jump in price.
Thank you for reading this issue of the SFM OBSERVER. If you have any comments or questions, please send us a reply. If you have a friend or associate that might be interested in the SFM OBSERVER, feel free to forward this email.
Have a happy and healthy new year,
Glenn Sweeney, CFA