Monday Morning Market Insights: Last Week in Review with Rusty Vanneman, Vol. 50

• I hope you had a wonderful and safe holiday – or are still enjoying one!
• This will NOT be a holiday-shortened week for the stock market (except the bond market closes at 2 pm ET this Friday), nor will we get next Monday off either. Due to Rule 7.2, there is no official time off this year for the New Year’s Day holiday. This is the first time this has happened since 2011, but here’s one cool thing I learned in the article: there is a new day off this year for “Juneteenth National Independence Day.” This will be on Monday, June 20, 2022. 
• The US stock market had another positive week last week, and that was after the S&P saw its biggest three-day drop since May earlier in the week. The S&P even closed last week at yet another new all-time price high. Small caps outperformed, as did Growth stocks.
• Entering the week, we are looking at a nice monthly gain for the US stock market (>+3%) and a nice quarterly gain (up nearly 9%). The prospects look good for a nice close this week given the improving COVID data and the typical Santa Claus Rally.
• The YTD return is now about 26% for the overall US stock market. There is still a chance for the best year in the market since the late ‘90s. Calendar year returns for S&P 500.
• Regarding COVID, it seems the consensus view (at least as of this writing) is that Omicron is extremely contagious, but not quite as dangerous as first feared.
• The last week of the year is typically a good one for the market. The Santa Claus Rally according to the Stock Trader’s Almanac. has meant historically positive stock market performance in the last five trading days of the year and the first two trading days of January.
• We want more Santa! According to data from LPL Financial, the Santa Claus Rally period encapsulates the seven days most likely to be higher in any given year. Since 1950, the Santa Claus Rally period has produced a positive return for the S&P 500 78.9% of the time, with an average return of 1.33%.  
• Investor sentiment readings remain a plus for the stock market’s near-term potential. For the 5th week in a row, the AAII Sentiment has had more bears than bulls. The low numbers of bulls remain near the lowest levels of the year. 
• Last week Ten Year Treasury Yields gained 9 basis points over the week to 1.49%. Coming into this week, the 10-year yield has closed between 1.40% and 1.50% every day, except for one day the first week of the month. 
• Again, it’s been a great year for the stock market and the largest stocks in the index did more than their share. According to Bespoke Investments, the five largest stocks in the S&P 500 account for an increasingly large share of the S&P 500’s market cap.  Apple (AAPL) and Microsoft (MSFT) each account for more than 6% of the S&P 500, Alphabet’s two classes of shares (GOOGL and GOOG) account for over 4%, Amazon.com (AMZN) is just under 4%, while Meta (FB) has a 2% weighting.  Together, the market caps of these five companies account for nearly 23% of the S&P 500. 
• There are multiple reasons why the stock market did so well this year, but here’s a big reason: corporate earnings. First, they were outstanding in absolute terms (for a frame of reference, nominal earnings growth averages closer to 4% per year over the long term). Second, earnings were even stronger than the professionals expected. The market often moves due to missed expectations and the market readjusted to reality.  Earnings Table from Allsworth Financial
• 2021 was a remarkable year, not only in terms of returns but also lack of volatility. This can be defined in the traditional way of actual price volatility, or it can be measured by how deep the drawdowns were. In September, the S&P did have a 5% drawdown based on intraday prices, but a price decline of more than 5% on closing price terms hasn’t been seen since October 2020. We typically get 3-4 price dips of 5% or more a year. 2021 was indeed a special year (knock on wood for the last week!). Source: OPS Quarterly Reference Guide
• It’s that time of year for outlooks. It’s always interesting to look back at the forecasts to see how they often turn out! Nonetheless, it’s interesting to hear how some major investment firms are thinking. Here are the summary points from First Trust’s 2022 Economic Outlook:  
  • Putting it all together, we expect real GDP to rise at about a 3.0% rate in 2022.  Why slower than 2021?  Because 2021 was artificially boosted by big deficit spending.  Why not slower than 3.0%? Because small businesses will bounce back, and the BBB tax hikes and distortionary spending are now less likely. 
  • For inflation, it looks like the Consumer Price Index will be up in the 6.5 – 7.0% range this year.  The consensus among economists is that will slow to 2.7% next year, but we think inflation will run 4.0% or more.  On a granular level, look for the rental price of housing, which makes up more than 30% of the CPI, to be a key driver of inflation for the next few years.  In addition, we expect oil prices will move higher again as regulatory ambiguity related to environmental rules curbs exploration.

Crypto Corner – Grant Engelbart, CFA, CAIA, Sr. Portfolio Manager

• We witnessed a Santa-Crypto rally last week, as prices rose broadly. Bitcoin was higher more than 8% (back above $50k), Ethereum 3%, Solana 10%, Cardano 17%, and rounding out the top 10 largest coins, Terra and Polkadot added more than 25%. The total cryptocurrency market cap rose back above $2.5 Trillion.
• Although crypto does not take holidays, the news flow was light last week. The president of El Salvador continued to buy more Bitcoin and a few Billionaires spat on Twitter over Web 3.0. The week prior, a glitch on CoinMarketCap.com created exponentially inflated prices for many cryptocurrencies, which created many instant billionaires for a few minutes!
• Digital Asset equities (as measured by the Bitwise Crypto Industry Innovators index) rose 9% last week. The SEC shot down the Kryptoin and Valkyrie Bitcoin-spot ETFs. Issuers are already lined up to keep on trying. 
• This week’s economic schedule is light. 
  • The current estimate for 4Q21 GDP, according to GDPNow, is 7.6%. 
  • Last week, the Bureau of Economic Analysis reported core personal consumption expenditures (PCE) — the Fed’s preferred inflation gauge — rose at a 4.7% year-over-year clip, or the fastest since 1983. 
• This coming week’s guest on Orion’s The Weighing Machine podcast will be Brie Williams from SPDR/State Street Global Advisors. Brie is a consummate investment professional (and a past speaker at one of our Orion conferences). We cover a lot of ground, including the impact of the Fearless Girl and how to get more women into the investment industry, especially with women becoming the dominant investment decision-maker in our economy.
• Speaking of podcasts, a podcast legend who is a fave of corporate America (and many more), is Tim Ferriss.  Here are his top  30 episodes of 2021. Interesting to see what dominated the list, including digital assets.
• Also, industry legend Ric Edelman will start to fly solo with a separate show called The Truth About Your Future.  Ric is known for his futuristic, yet practical thinking. This includes, of course, digital assets. If you would like to learn more about digital assets, Orion has partnered with a renowned personal finance expert and founder of the Digital Assets Council for Financial Professionals (DACFP) Ric Edelman, to provide more content on digital assets. This link leads to a sign-up page for a webinar hosted by Orion with Ric. In the end, a discount code is provided to attendees for the DACFP certification program. Nearly 100 advisors have already signed up using this code, so feel free to check it out and become certified on everything digital assets.  
• “The best stock to buy is the one you already own.” – Peter Lynch
• This is the time for year-end reflection.  Along these lines, blogger and venture capitalist Morgan Housel posted a good list of questions to ask yourself to keep an open mind: I Have A Few Questions.
• More top movie of the year lists is below!
  • The 10 best-animated movies of 2021 including ‘Encanto.’ (pastemagazine.com)
  • The 25 best international movies of 2021 including ‘Parallel Mothers.’ (pastemagazine.com)
  • The 20 best documentaries of 2021 including ‘Becoming Cousteau.’ (variety.com)
  • The best documentaries of 2021 including ‘Philly D.A.’ (vox.com)
  • The best documentary series of 2021 including ‘The Lady and the Dale.’ (variety.com)
• Thanks for reading and have a great week!  For more resources, please check out the Financial Advisor Success Hub, and as always, please let us know what we can do better at rusty@orion.com or ben.vaske@orion.com.
•  Happy Holidays!

0004-OPS-1/3/2022

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