Here’s what may save the stock market as Powell removes the Fed put, according to a strategist
Stocks are set for some modest gains on Thursday, as investors absorb fresh inflation data and a day after some nosebleed consumer-inflation data. We are also one day out from the start of fourth-quarter earnings, to be kicked off by big banks.
“U.S. equities are now firmly in a trading range, and we believe it will require significant surprises on earnings (either way) or a breakout in the U.S. 10-year yield to take U.S. equities out of the trading range,” Peter Garnry, head of equity strategy at Saxo Bank, told clients in a note.
Inflation updates are driving plenty of discussion about when the Federal Reserve rate hikes will come, with March looking like a shoo-in for the first one. This chart from ClearBridge Investments shows that equities often rise headed into that first hike, and settle into gains eventually afterward.
“After a period of choppiness following liftoff, the market has historically found its footing,” said Jeff Schulze, investment strategist at ClearBridge Investments, in a webcast to clients on Wednesday with Franklin Templeton Investments. Here’s another chart from that presentation, showing stock returns rising over time as rates rise:
Our call of the day from the ClearBridge/Franklin Templeton team says retail traders may once again provide a support for stocks this year. In short, the “retail will replace the Fed put.”
As Schulze explained, investors have been emboldened in the past by expectations the Fed is always there to support equities in times of trouble. With central banks shifting to tapering and tightening in 2022, the theory is that retail traders could be ready to buy any dips.
In 2021, as their chart shows, investors poured more money into global equities than in the previous 25 years combined. That was predicted by Deutsche Bank and others in early 2021 who saw a “fearless” flock of new investors driving money into stocks.
“With retail investors stepping in to buy the dips, the market did not experience a significant drawdown in 2021. January typically experiences the largest inflows of any month, suggesting the retail put remains in place as we enter 2022,” said Schulze in the presentation.
Providing more support to this theory is a new survey from Investing.com showing that 86% of last year’s first-time stock buyers plan to keep buying in 2022. The survey of 1,600 U.S. respondents also showed they are more likely to take risks, with 58% including cryptocurrencies in portfolios, and also more interest in buying meme stocks.
Schulze said while it isn’t totally clear if those retail investors will show up this year, he believes the drumbeat around “TINA” — there is no alternative (to stocks) — may help.
And it isn’t just retail traders buying stocks, it’s also corporations buying and in a “very aggressive manner, said Schulze.
The buzz
An ease in inflation? December producer prices rose 0.2%, and were up 0.4%, minus energy, food and trade. Prices rose 9.7% on an annual basis. Weekly jobless claims rose 23,000 to 230,000.
Fed. Gov. Lael Brainard will testify at 10 a.m. Eastern at her Senate nomination hearing as the next vice chair of the central bank. In prepared remarks released Tuesday, she said inflation was “too high” and the Fed needs to focus on getting it back down to 2%.
Coinbase shares COIN,
A lab study showed cannabis compounds stopped infections from the virus causing COVID-19 by blocking its path to cells.
Taiwan Semiconductor TSM,
Valued at $9 billion, private-equity firm TPG Partners is making its public debut on Thursday, with shares set to start trading at $29.50.
Delta Air Lines DAL,
The markets
Stocks DJIA,
The tickers
These are the most active tickers on MarketWatch as of 6 a.m. Eastern.
| Ticker | Security name |
| TSLA, |
Tesla |
| GME, |
GameStop |
| AMC, |
AMC Entertainment |
| NIO, |
NIO |
| TSM, |
Taiwan Semiconductor Manufacturing |
| AAPL, |
Apple |
| BABA, |
Alibaba |
| NVDA, |
Nvidia |
| OCGN, |
Ocugen |
| LCID, |
Lucid |
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