Date: January 12, 2022

Bulls Immediately Step Up – Inflation HOTTTT

In Monday’s post, I offered that if the pullback was normal, routine and healthy, the bulls would immediately step up. What I didn’t realize was they were going to bull rush the bears literally right away on Monday morning. And with that came the media’s gush over the “historic” price reversal. No it wasn’t.

When I look at the major stock market indices, all of them show constructive behavior this week. And as I wrote about in my forecast for the year, volatility is going up. Get used to it. Don’t marry things. Rent instead of owning until proven otherwise. And it’s going to take a lot of internal strength to prove the ownership case.

Inflation came in a little hotter than expected, yet again. It has been a trend. However, which should be in caps, the markets have not responded poorly. In fact, the bulls seem celebrate and buy the bad news. I wrote about this for the past 7 months. Markets are not freaked out nor even worried about the highest headline inflation since 1981. They have taken it all in stride, unlike consumers and politicians. That’s just one of the reasons why on October 28 I forecast that inflation would peak between then and April 1.

Finally, I spent a fair amount of time on the year-end and Santa Claus Rally. Let’s update the first 5 days trend that I wrote about at year-end. If you recall, I had high conviction that the S&P 500 would lead during the first week of 2022 and the S&P 400 and Russell 2000 small and mid caps would lag. If you’re keeping score at home, it wasn’t a good start to the year, but the S&P 500 lost 1.87% while the S&P 400 shed 1.77% and the Russell lost 2.87%.

On Monday and a little bit on Tuesday, as you can see, we definitely added significant market exposure, buying HYG, FSTA, FB, more UNH, more MDB, SPY, GDX, IVE, IVW, IJS, QQQ, UCC, URE and QDEC. We sold OCDX, VMC, SPY, DIG, RSP and FAPR


Paul Schatz, President, Heritage Capital