Special Update: The HCM-BuyLine® Has Turned Negative

The HCM-BuyLine® has been breached and has turned negative. This is the first time since February 2020, at the being of the pandemic, that the HCM-BuyLine® has gone negative. We will be reducing exposure to equities and waiting for the market turn back up. We do expect a trader’s rally as the markets are oversold, but any rally with the HCM-BuyLine® being negative should be sold into. Remember, our mutual funds and ETFs reduce exposure inside the funds.

The first trading day of the year was up, and since then, it has just been a barrage of selling. How fast the markets move in this day and age is sometimes breathtaking. Computerized trading is very evident in these selloffs. Could we be headed to much lower prices? Only time will tell, but the trend is clearly down.

Inflation and rising rates are major causes of this tremendous amount of volatility. Inflation is at 7% and you have to go back to the late 70’s and early 80’s to see these kinds of levels. Gas prices have really moved higher and filling up a tank of gas has gotten very expensive. Food costs have moved a lot higher, along with pretty much everything. The raise in wages is being completely nullified by how high the inflation number is.

Even with the market selling off there is still a lot of road in 2022.

Be Mindful of Emotions During Downward Pressure

The HCM-BuyLine® has weakened and we are monitoring to see if a change in trend is imminent. Growth stocks, technology, semiconductors, small caps, and just about everything has dropped at a fast pace since the start of the year. A relief rally is probably pretty close at hand, but the question is will it hold, or is this the start of a downtrend? On a short-term basis we are oversold, and a breach of the HCM-BuyLine® would indicate a more dire outlook. As everyone knows, when the market closes 3.5% below the HCM-BuyLine® we systematically start to reduce risk and wait for the market to wash itself out. Drawdowns and pull backs are part of the game, and while they are never fun, they are inevitable.
Inflation and rising rates are putting a lot of pressure on the markets. Rates will go up this year and bonds are in for a nasty run for the foreseeable future. There are parts of the market that have held up well, but when the trend changes the market usually sees every asset class go down. Trying to find a safe investment will be a challenge. Real estate will not like higher rates, utilities will be under pressure and bonds are going to get beaten up, so as unattractive as cash is, that will be the place to sit and wait.
But for now, patience and controlling emotions is what we need to concentrate on. Even if we are forced to reduce exposure remember there is a lot of road left in 2022.

Finding Positives in the Face of Inflation

Inflation soared 7% in 2021, the biggest increase in nearly 40 years. The Consumer Price Index, which tracks the price of a broad range of goods and services, increased 7% from the year before in December. Younger consumers have never experienced this sort of spiraling inflation. The last time prices rose so quickly was in the summer of 1982, as it was cooling off from the double-digit increases of the 1970s. Another month, another big and broad increase in the prices paid by American consumers.
The HCM-BuyLine® is positive, and even with the volatility the trend is still up. The big jump in inflation is causing a lot of stress on the markets as seen by the nasty little selloffs we have been experiencing. What does it mean for the markets in 2022? Inflation/supply chain news = volatility. But with 7% inflation that means you’re losing 7% a year if you’re sitting in cash, so how many people will continue to do that?  Also, we monitor cash build up and it is big, there is a tremendous amount of cash on the sidelines. Losing 7% in cash = a positive for stocks. The Fed is expected to raise interest rates at least three times this year to cool rising inflation, although many economists predict four rate hikes.  Rising rates drops the value/price of bonds = positive for stocks. Bonds will have a very hard time with a rising interest rate environment. I would hate to be a bond trader or manage a fund where all they can buy is bonds because it will be extremely stressful for that person. Their job will not be about making money, but about trying to lose as little as possible. They will need a lot of Xanax in the next 12-24 months because stress and anxiety will be their whole world. Bond investors will get very frustrated seeing their portfolios drop and look for other opportunities such as high-dividend or value stocks.

Starting off the New Year with a Volatile Market

After closing out a very nice year the markets are off to a rocky start. The first couple of weeks of a new trading year seem to always be volatile, and with very little direction. This is primarily caused by fund managers, institutions, hedge funds, etc. readjusting their portfolios for the new year. It should calm down by month-end. I do expect the market to sell off a bit more before we find a short-term bottom in all this slop. Investors should expect at least one 10% correction this year, and after three big years this should not a surprise.

Bonds will be a very difficult place to make money this year when the fed starts to raise rates. This gives stocks a brighter outlook. I had thought that rates would moderate a little at the beginning of 2022, as the economic growth rate slowed due to COVID and other factors. Not so, as yields across the spectrum have resumed their bull market rally in anticipation of higher inflation and a less accommodative central bank. Even the long end is beginning to come to life.

ADP private payrolls jumped 807,000 in December, the most in seven months, and above the consensus of 373,000. Payroll gains averaged 625,000 per month in Q4, exceeding the 386,000 averages in Q3, on the back of a subsiding Delta wave of Covid-19, and without much impact yet from the Omicron variant. But the latter continues to spread quickly and has already delayed some back-to-the-office plans, which could weigh on payroll’s growth in early 2022

The hiring spree in December was dominated by service-providing industries, which added 669,000 to payrolls, the most in six months. The leaders in services were leisure/hospitality (+246,000), trade/transportation/utilities (+138,000), and professional/business services (+130,000). Goods-producing payrolls increased 138,000, the biggest gain since September 2020, with both construction and manufacturing adding the most jobs since at least Q3 2020.

Vance Howard on CNBC Squawk on the Street

Vance Howard joins David Faber on CNBC Squawk on the Street to discuss the state of the market going into 2022.
Source: cnbc.com/video/2021/12/31/emerging-markets-remain-a-wildcard-for-2022-says-itas-ben-mandel

Ending the Year With a Look at What 2022 Could Bring

HO! HO! HO! The Santa Claus rally appears to have started Monday with a very strong move to the upside. Tuesday pulled back just a little bit, which should be expected with Monday’s big day to the upside. Three more trading days and we should be able to lock in a big year for HCM and those we trade for. The market has traded just about spot on as we have been predicting with the Covid news constantly being talked about, discussed, and never-ending on the news media. But we must trade the market we have, not the one we wish we had. With that said, if the next three days hold up, it will be another big year for all of us.

I have constantly been asked what I think the market will do in 2022. Let me answer by saying no matter what I think, we will be trading our system. Math, not emotions. But here’s my take on next year. The market will see additional volatility, probably for the first half of the year. A 10% correction should be expected and, in all probability, the HCM-BuyLine® will hold, and it will be a buying opportunity. We think the market in 2022 could produce gains in excess of 10% on the S&P 500.

Mid-term elections are next year and having a down market has a bad effect on incumbent politicians getting reelected. They will not want that going into the midterms. The Fed will raise rates 3 times, but we do not see them raising a 4th time, so stocks will be a much better investment than bonds in 2022. Inflation will be persistent, but remember, markets can and have moved much higher in an inflationary environment. There is still a tremendous amount of cash on the sidelines that is yet to be invested. We think Covid will start to roll over in the first quarter of 2022 which will be good for the markets in Q3 and Q4.

I hope everyone has a great week and a happy new year!!


Vance Howard on CNBC Worldwide Exchange

Vance Howard joins Dom Chu on CNBC Worldwide Exchange to address the new COVID surge, the Fed’s shift towards higher rates, and the impact on the market into the end of the year and 2022.
Click below to watch the full interview.

FOMC Meeting on the Horizon, will we get a Santa Claus Rally?

The markets have pulled back the last three trading sessions and look set to base and move higher into year end. There was a buyer’s strike heading into the FOMC meeting, but we expect a “buy the news” rally. It is widely expected that the Fed will announce a tapering of bond purchases. It was also encouraging to see markets rally intraday on Tuesday. 1) The S&P 500 is still near its all-time highs. 2) Sentiment has collapsed in the past two days and 3) We think the odds favor a “buy the event” rally.

We are all looking for the famous Santa Claus rally. What is the Santa Claus rally? Well here you go: A Santa Claus rally is a calendar effect that involves a rise in stock prices during the last 5 trading days in December, and the first 2 trading days in the following January. According to the 2019 Stock Trader’s Almanac, the stock market has risen 1.3% on average during the 7 trading days in question since both 1950 and 1969. Over the 7 trading days in question, stock prices have historically risen 76% of the time, which is far more than the average performance over a 7-day period.

Higher and broader inflation in November:

Inflation pressures continued to mount in November, reflecting robust consumer demand and persistent shortages due to ongoing supply chain issues. The Consumer Price Index (CPI) increased 0.8%, a modest downtick from 0.9% in the previous month, but above the consensus of 0.6%. Food prices rose 0.7%, also a slight deceleration from the prior two months, but still more than 2.0 standard deviations above the mean since 1990. The latest increase was led by higher grocery prices. Energy prices rose 3.5%, led by gasoline. Together, food and energy account for more than 1/5 of the CPI and are among the most visible CPI components for consumers. As a result, they likely have an outsized impact on consumer inflation expectations, which have also moved up significantly this year.

Core CPI, which excludes food and energy, advanced 0.5%, in line with the consensus. Shelter, the biggest CPI component with about 1/3 of the weight, shot up 0.5%, the most since October 2005. Rent and owners’ equivalent rent each rose 0.4%, both nearly double their average monthly gain historically. Used and new vehicle prices continued to increase at fast rates, up 2.5% and 1.1%, respectively. There were also notable increases in household furnishings and operations (+0.8%), apparel (+1.3%), and air fares (+4.7%). In contrast, prices for vehicle insurance, recreation, and communication declined last month.

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