Fed Hikes Rates A Little More And No Santa Rally So Far As Markets Remain Down

TL;DR

• The Fed has hiked rates again this month, though the 0.50 percentage point increase slowdown from the 0.75 percentage point increases we’ve seen at the past four meetings
• The annual rate of inflation was down in November, with prices rising just 0.1% to bring the annual rate down from 7.7% to 7.1%
• The Santa Rally usually sees markets gain ground in December, but it’s not looking good this year with the S&P 500 down -4.44% so far
• Top weekly and monthly trades

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Major events that could affect your portfolio

This we saw an update on what have been the two hottest topics in money for pretty much this entire year. That’s right, we’re talking about Gamestop and AMC. Oh, no, sorry that was last year.

This year the top trending topics have involved far fewer rocket and diamond hands emojis, though the pace at which both inflation and interest have gone up has definitely warrants a few rockets of their own.

As expected, the Fed has continued their rate hike cycle, with the Federal Open Market Committee (FOMC) meeting this month and agreeing to an increase of 0.50 percentage points. This is still a chunky raise, but it’s less than the 0.75 percentage point increases we’ve seen at the last four meetings.

The comments from Fed chairman Jerome Powell, plus the ‘dot plot’ survey of the individual members of the Fed, show that while the pace of the hikes is slowing, they’re far from done. The median prediction is for the base rate to be at 5.1% at the end of 2023, up from its current rate of 4.25%.

One of the reasons for the lower rate hike is that inflation has started to creep down, with the trend picking up pace. Inflation hit its high point of 9.1% back in June, and the annual rate has fallen every month since. The data for November was released this week, showing prices had increased by just 0.1% against a projection of 0.3%.

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Where are you Santa? Statistically speaking, the stock market has a higher probability of recording a positive return in December than any other month. 77.9% of the time US large cap stocks notch gains, with the month with the second highest probability of a gain (November) a ways back with a 67.4% chance of gains.

The ‘Santa Rally’ is real and there’s a number of different theories as to why it happens. With many of us in the festive spirit, we’re less likely to be rattled by any bad news, as well as the fact that many investors probably aren’t really watching the markets at all.

This isn’t just the case for retail investors, but for professional investment managers as well. With many people taking time off with their families in December, plus the market being closed for a number of days, there’s simply less volume traded.

And of course, there’s the self fulfilling prophecy aspect. Because many investors believe in (the) Santa (Rally), they’re prepared to hold positions or pay more to get in, on the expectation that prices will go up.

So far though, Santa hasn’t arrived in 2022. It’s apt given the year we’ve had, but after a couple of good months in October and November, the S&P 500 is now down 4.44% so far in December. With just a couple of weeks left in the month, it’s going to take a Christmas miracle to end in the green.

This week’s top theme from Q.ai

A theme that continues to receive plenty of attention and funding is renewable energy. There is major investment in the space, from both the private and public sectors, and this is only likely to increase over time.

Last week saw a massive development in the renewable energy front, which could provide a glimpse into a fully renewable future. On December 5th, scientists in California managed to generate more energy from a nuclear fission reaction than they put in.

This is huge news. So huge, that the researchers believe that we are within 40 years of gaining the ability to generate limitless energy with zero emissions. Read that again. If that turns out to be true, it will be one of, if not the, greatest human achievement ever.

But investors don’t need to wait 40 years to gain benefit from clean energy investment.

President Biden’s Infrastructure Bill includes the largest investment in clean energy in U.S. history, with approximately $62 billion of the bill earmarked for the Department of Energy (DOE). The funding will see the DOE spend billions on improving the supply chain for batteries, hydrogen and recycling research and development and increasing energy efficiency on low income households.

Basically, it’s all happening in renewables right now, which is why we offer our investors the Clean Tech Kit. Every week our AI predicts the risk-adjusted performance of three clean energy ETFs, and then automatically rebalances between them.

It gives investors access to cutting-edge clean technology investments, combined with cutting-edge AI machine learning.

Top trade ideas

Here are some of the best ideas our AI systems are recommending for the next week and month.

Edwards Lifesciences (EW) – The medical technology company is one of our Top Buys for next week with an A in Quality Value and a B in Technicals. Revenue is up 5.3% over the past 12 months.

DR Horton (DHI) – The home builder is our Top Short for next week with our AI rating them a F in Quality Value and a C in Low Momentum Volatility. Analyst projections according to Capital IQ predict a 40% reduction in earnings per share over the coming year.

Chemed Corp (CHE) – The healthcare provider is one of our Top Buys for next month with an A rating in Quality Value and Low Momentum Volatility. They’ve grown their growth profit margin every year since 2016.

Leafly Holdings (LFLY) – The customer acquisition company is one of our Top Shorts for next month with our AI rating them an F in Quality Value and a D in Low Momentum Volatility and Technicals. Their profit was -$31 million in 2019, -$9 million in 2020 and -$12 million in 2021.

Our AI’s Top ETF trade for the next month is to invest in Hong Kong, gold and silver and Treasuries, and to short Treasury Inflation Protected Securities (TIPS). Top Buys are the iShares MSCI Hong Kong ETF, the iShares Silver Trust and the VanEck Gold Miners ETF. Top Shorts are the iShares U.S. Short Treasury Bond ETF and the iShares TIPS Bond ETF.

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