By Barbara Kollmeyer
Are stocks ready to break away from that rocky start to 2022?
The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.01% snapped a five-session losing streak on Tuesday , after Federal Reserve Chairman Jerome Powell vowed the central bank would use its “tools” to get inflation under control without damaging the economy. And equity futures are rising, even after data showing the fastest annual rise in consumer prices since 1982.
A rebound with legs may not quite be here, say some. “Bounces from oversold levels tend to be hard and fast, and yesterday’s 150-point intraday reversal definitely counts as hard and fast,” noted Jani Ziedins, of the CrackedMarket blog . “That said, more often than not, the third bounce is the real deal, meaning we could see a couple tests of the lows before this is all said and done.”
On to our call of the day from a so-called bond king, DoubleLine CEO Jeffrey Gundlach, who has unveiled his predictions for the year ahead. And he sees headwinds for a stock market that has been “supported by QE [quantitative easing]” and now faces Fed tapering, with Powell sounding “more hawkish” every time he speaks.
“Today [Tuesday] sounds like Jay Powell repeating the 2018 formula: end QE and raise official short-term interest rates,” Gundlach said in a webcast to clients that was live tweeted late Tuesday. He said that he’s not “predicting a recession yet” but sees those pressures building.
He said the yield curve had seen “pretty powerful flattening” and was “approaching the point where it signals economic weakening. At this stage, the yield curve is no longer sending a don’t-worry-be-happy signal, says Gundlach. It is instead signaling investors to pay attention, he said.
Gundlach highlighted a chart that showed consumer sentiment “free falling,” which “looks somewhat recessionary.” He said surging car prices could be one culprit as prices have climbed so much “people don’t think this is a good time to buy a car if they can find one.” That surge in prices has even made it possible to make money by flipping and selling, he said.
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The money manager said the housing market is being boosted by low supplies and should stay supported provided mortgage rates are low. He is neutral on gold and sees the dollar continuing to weaken.
U.S. stocks are expensive versus equities just about everywhere else, Gundlach said, as he pointed out that European markets, a favorite of his in 2021, were looking good again for 2022.
Looking back on Gundlach’s 2021 forecast , the manager advised a “winning” formula of half cash and Treasury bonds; 25% equities, mostly emerging markets and Asia; and 25% in real assets, such as gold or property, to hedge against higher inflation. He expected U.S. equities would lag behind the rest of the globe, alongside rising inflation and volatility.
The iShares MSCI Emerging Markets ETF /zigman2/quotes/201454250/composite EEM +0.41% lost 5% in 2021, versus a 27% rally for the SPDR S&P 500 ETF trust /zigman2/quotes/209901640/composite SPY +0.04% , a popular exchange-traded fund that tracks the index. Real estate indeed proved a savvy investment spot, though gold dropped 3% in 2021, and Treasury bonds had a dismal year.
The data are in and December consumer prices rose 0.5% for the month and 7% on an annual basis , with both numbers coming in stronger than forecast. Still ahead are federal budget numbers and the Fed’s Beige Book.
The European Medicines Agency has warned that too many COVID-19 boosters could end up harming immune systems, echoing comments from the World Health Organization . Meanwhile, the omicron variant may be peaking in the U.K., offering hope for the U.S. and elsewhere . And the White House is getting ready to ship millions of COVID-19 tests to public schools.