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Inflation, rising rates and the Federal Reserve could whip stocks around in the week ahead


Traders are seen on the New York Stock Exchange’s floor in New York City (USA), December 2, 2021.

Brendan McDermid | Reuters

After stocks had a rough start to 2015, rapidly increasing interest rates have meant that the bond market may again be the main driver of the week.

This week: key inflation reportswere expected and Federal Reserve Chairman Jerome PowellTuesday, February 12, 2012 at his nomination hearingIn front of a Senate panel. Thursday, the Fed Governor Lael brainard will appear before a Senate panel. hearing on her nominationTo the position of Fed Vice Chair

A number of major banks also report on the first quarter results. JPMorgan Chase, CitigroupAnd Wells FargoOn Friday.

Leo Grohowski is chief investment officer at BNY Mellon Wealth Management. “Inflation continues to be the main theme next week. But I think we do look forward to having some earnings results,” he said. We believe it will be a strong quarter, and an excellent year for earnings. That is why we are generally positive about the prospects for earnings.

Grohowski stated that the market will be focusing on Powell and Brainard as well as Wednesday’s consumer price index and Thursday’s producer price index.

He stated that he thought it was unrealistic to think earnings would be the main story and Fed monetary policies the secondary story.

Stocks suffered a tough start to the year. Bond yields rose on expectations of Fed interest rate increases and the belief that Covid’s omicron version is headed for an increase in the next few weeks. When bonds are sold, yields rise.

Tech was especially hard hit by the NasdaqFor the week, the decline in the stock market was greater than 4% DowThe ground is basically flat. The Technology Select Sector SPDR FundAs of Friday afternoon, it was down 4.2%. However, banks moved higher in anticipation of rising interest rates helping earnings. These were the results. Financial Select Sector SPDR FundIt was higher than 5%

Grohowski stated, “This week was an alarming sign of what we need to deal with in 2022.” Lower returns, higher risk. “Welcome to the new year.”

While yields rose across the curve quickly, the most notable move by the benchmark 10-year shocked investors the most. In the last hour of trading in 2021, the 10-year yield, which has an impact on mortgages, rose to 1.80% Friday.

According to Wells Fargo, this is the second largest move in yields for the first week in 20 years.

Grohowski said, “It is more dramatic than we had anticipated” and that the Fed has taken a surprising turn to become more hawkish. Most market participants anticipated higher rates and less accommodating monetary policy. However, the fed funds, which implied that there was a 90% chance for a March hike, were only 63% as of New Year’s Eve. The Fed minutes have shown a dramatic change of tone this week and the markets are responding to it.

Powell will not be making news but because of his likely echoing the message. tone of the Fed minutesThis was released on Wednesday.

The minutes revealed that the Fed is also discussing with officials when it will begin shrinking its almost $9 trillion balance. Fed officials have already predicted tightening policies with three quarter-point rate rises in interest rates this year. Downsizing the Fed’s bond holdings would further tighten them.

The disappointing news was also received by bond investors December jobs report FridayBy raising interest rates. Last month saw just 199,000 new jobs, which is less than the half-expected. However, the unemployment rate dropped to 3.9% (from 4.2%), which was more than what we expected. The average hourly wage rose by 0.6% or 4.7% over the previous year.

Economists attributed the weakness of the report to a shortage in workers for jobs. The Fed will continue to raise interest rates.

This is the Fed declaring that we are at full employment. Although there is still some gap, the wage increase was more than expected, and concentrated heavily in low-wage positions,” stated Diane Swonk chief economist at Grant Thornton. We are now about 3.5million shy of our previous peak and the labor market behaves as though we have no full employment.

CPI/PPI reports will keep inflation front-and-center. While economists anticipate another strong month in both the CPI and PPI readings, some economists think inflation is near its peak. November’s headline CPI of 6.8%It was the highest recorded since 1982.

The yields will be a constant concern for stock investors. Rising rates are most likely to affect tech and growth stocks, as investors promise future income. Higher interest rates translate into higher money costs and a change in the investment equation.

Grohowski anticipates that the 10-year yield will reach 2.25% before the end of this year. However, it is moving much faster than expected. He stated that “Getting there earlier causes more pain…in those longer-term equity sectors like tech and Nasdaq.” I believe that yields will settle and tech will come back. We’re likely to have really high earnings in the coming year, I believe. Tech is still a major beneficiary.”

Grohowski stated that the market might see a 10% drop in 2022. However, he is skeptical about this now because so much money will come to the market during the new year.

I believe this dry powder can be used. He said that he believes we are off to a rough start, but then have to reset. I believe that this reset of expectations will ultimately be healthy. After the low returns and volatility last year, and an increase in market activity in three years, I believe market participants have gotten a wakeup call early in the new year. The next twelve to 18 months will bring more challenges.

In the next week there will be three major Treasury auctions: a $52billion 3-year note sale Tuesday, $36billion 10-year bond auction Wednesday and $22billion 30-year bond auction Thursday.

Although the 10-year rose to 1.80% on Friday, it could return to this level within the next week. This puts the 10-year just above its 2021 peak. Greg Faranello of AmeriVet Securities, who is the head U.S. rate, said that “in and around these levels, market will attempt to find some short-term support.” He said that auctions could help to limit yield moves for the moment.

Week ahead calendar


Earnings:The Commercial Metals Accolade, Tilray

10:00 am. Wholesale trade


Earnings: Albertsons

6:00 a.m. NFIB survey

Esther George (Kansas City Fed President) at 9:15 a.m.

10:00 AM: Hearing of the nomination for Fed Chairman Jerome Powell before Senate Committee on Banking, Housing, and Urban Affairs 

4:00 p.m. St. Louis Fed President James Bullard


Earnings: Jefferies Financial, Infosys, KB Home, Wipro

9:00 a.m.

2:00 p.m. Federal budget

2:00 p.m. Beige book


Earnings: Delta Air Lines, Taiwan Semiconductor

8:30 a.m. 8.30 a.m.

8:30 AM PPI

10:00 am Fed Governor Lael Mindard Nomination Hearing for Fed Vice Chair in front of Senate Committee on Banking, Housing, and Urban Affairs 

Richmond Fed President Thomas Barkin, 12:00 p.m.

Charles Evans (Chicago Fed President) at 1:00 PM


Earnings: JPMorgan Chase, BlackRock, Citigroup, Wells Fargo

9:00 a.m.

8:30 a.m. 8:30 a.m.

9:15 a.m. Industrial production

10:00 a.m. Consumer sentiment

10:00 a.m. Inventory of businesses

John Williams, President of the New York Fed at 11:00 AM