Daily Brief for January 13, 2022

Daily commentary for market and investment insights

What Happened in the Markets?

Today, U.S. equity futures tilted higher as traders considered the most recent reading on American inflation and the speculating surrounding when the Federal Reserve would raise rates in a post-pandemic world.

All indications are that the Federal Reserve will hike rates at least three times this year, and the fourth raise in December is seen as a done deal. The latest economic numbers, which barely moved the market today, won’t deter them from continuing to tighten credit as they have signaled from day one.

A recent rise in bond yields has caused a market correction. Currently, investors are paying more attention to this jump and less to high-flying tech stocks.

The market is generally bearish – investors are short, hedges are overly large, everyone has on the puts, sentiment is negative, everyone is looking for the correction. This bearish atmosphere may redirect into buying prospects in the equity market.

The decrease in volatility help stabilize the markets and make it manageable to continue their rally. One other significant factor is the record amount of share repurchases this year.

As more investors believe that the dollar has reached its peak, the U.S. currency has started to plunge. Thus far, it has underperformed all of its G10 counterparts.

20220113 G10 Currencies against USD
Source: Bloomberg

Hedge funds are still bullish and have increased the positions they’ve taken on the dollar against other major currencies for the past few weeks, according to data from the Commodity Futures Trading Commission that Bloomberg compiled.

In today’s low-rate environment, investors are ready to tolerate lower returns for the safety that U.S. Treasuries delivers compared to other investment prospects – that is, those with higher risk factors such as stocks. There’s a rational reason for this: they require a more significant return on their money invested in a market.

20220113 Flow into Inflation Protected Bond Funds
Source: FT.com

The market breadth is shrinking, with few stocks supporting it.

20220113 S&P 500 Breadth
Source: Yardeni Research

The U.S. unemployment rate has fallen to a new low of just under 4%. The rate hit over 3.5% before the pandemic. There was a pandemic high for labor-force participation, which is just over 61%.

Nickel has been riding a broader commodity rally that has glimpsed the metal’s prices reach highs not seen in the last ten years. The price boost is partly because the production of electric cars is on the rise, which indicates less demand for nickel for traditional uses.

The AQR’s Absolute Return fund has been very successful over the week as it incorporated various investment strategies. It went up by 10.4% over the past five days, making this the most robust performance ever since its inception.

Disclosure: This article expresses my own views, and I wrote the article by myself. I am not receiving compensation for it. I have no business relationship with any company whose security is mentioned in this article.

Sources: FT.com, Bloomberg, MarketWatch, WSJ.com

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