Investment Commentary – January 11, 2022

Rolling One Year Market Indices as of January 11, 2022
• Dow 36,261 (16.87%)
• S&P 4,710 (23.94%)
• NASDAQ 15,151 (16.94%)
• Barclay Bond Aggregate (-3.81%)
• Fed Funds Rate 0-0.25 (0-0.25)
• Annual Inflation Rate 6.8% (As of 11/21/21)


Jamie Dimon sees the best economic growth in decades, more than 4 Fed rate hikes this year

Jamie Dimon said the U.S. is headed for the best economic growth in decades.

Dimon, the longtime CEO and chairman of JPMorgan Chase, said his confidence stems from the robust balance sheet of the American consumer.

Dimon said that while the underlying economy looks strong, stock market investors may endure a tumultuous year as the Fed goes to work.

Jamie Dimon said the U.S. is headed for the best economic growth in decades.

“We’re going to have the best growth we’ve ever had this year, I think since maybe sometime after the Great Depression,” Dimon told CNBC’s Bertha Coombs during the 40th Annual J.P. Morgan Healthcare Conference. “Next year will be pretty good too.”

Dimon, the longtime CEO and chairman of JPMorgan Chase, said his confidence stems from the robust balance sheet of the American consumer. JPMorgan is the biggest U.S. bank by assets and has relationships with half of the country’s households.

“The consumer balance sheet has never been in better shape; they’re spending 25% more today than pre-Covid,” Dimon said. “Their debt-service ratio is better than it’s been since we’ve been keeping records for 50 years.”

Dimon said growth will come even as the Fed raises rates possibly more than investors expect. Goldman Sachs economists predicted four rate hikes this year and Dimon said he would be surprised if the central bank didn’t go further.

“It’s possible that inflation is worse than they think and they raise rates more than people think,” Dimon said. “I personally would be surprised if it’s just four increases.”

Dimon has expressed expectations for higher rates before. Banks tend to prosper in rising-rate environments because their lending margins expand as rates climb.

Indeed, bank stocks have surged so far this year as rates climbed. The KBW Bank Index jumped 10% last week, the best start to a year on record for the 24-company index.
Nasdaq leads stocks higher as investors take Powell testimony in stride.

Powell says Fed can rein in inflation without wrecking labor market.

U.S. stocks were trading higher Tuesday afternoon, with tech-related shares extending a bounce from the previous session, as investors appeared to take testimony by Federal Reserve Chairman Jerome Powell in stride as they looked for clues to the pace of future rate increases and other plans for tightening monetary policy in 2022.

On Monday, the Dow and S&P 500 ended lower, while the Nasdaq Composite closed fractionally higher. According to Dow Jones Markets Data, the Nasdaq’s reversal from a 2.7% slide earlier was the strongest intraday reversal since Feb. 28, 2020. The late-day reversal was driven by companies that had seen the worst year-to-date performance, according to Bespoke Investment Group.

What’s driving the market?

Stocks rose as investors digested Federal Reserve Chairman Jerome Powell testimony before the Senate Banking Committee in a hearing on his nomination to serve a second term.

Powell painted a picture of a soft landing for the economy as the Fed moves to remove emergency stimulus measures and begin raising interest rates, even as market participants increasingly expect the central bank to move much more aggressively than previously anticipated after inflation proved hotter and much more persistent than policy makers had predicted.

“It really is time for us to move away from those emergency policy settings to a more normal level. It really should not have negative effects on the labor market,” said Powell, who is widely expected to be confirmed by the Senate.

Investors also assessed speeches from regional Fed presidents and prepared for Wednesday’s inflation data.

Kansas City Fed President Esther George, said in a speech Tuesday that the central bank should speedily reduce its enormous $8.5 trillion pile of bondholdings to help curb the highest U.S. inflation in almost 40 years and discourage undue risk-taking.

Cleveland Fed President Loretta Mester said she would back a rate increase in March if the economic backdrop resembles current conditions. Mester said she sees the Fed raising rates three times in 2022. George and Mester are both 2022 voting members of the Fed’s policy-setting Federal Open Market Committee.
News Around The web:

Mixed jobs report

Although December’s U.S. job growth total of 199,000 was well below most economists’ expectations, that disappointment was mitigated somewhat by revisions that boosted growth figures for the preceding two months by a total of 141,000. In addition, the unemployment rate fell to 3.9% and wages grew at a 4.7% annual rate.

Earnings outlook

With quarterly earnings season opening up this week, more companies in the S&P 500 have recently been reducing their earnings forecasts than lifting them, according to FactSet. While it’s been historically common for more companies to issue negative guidance than positive guidance, that’s not been the case during the pandemic; this earnings season marks the first time that reductions have exceeded increases since the second quarter of 2020. (indices)