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Larry’s note: Welcome to Trading with Larry Benedict, the brand new free daily eletter, designed and written to help you make sense of today’s markets. I’m glad you can join us. My name is Larry Benedict. I’ve been trading the markets for over 30 years. I got my start in 1984, working in the Chicago Board Options Exchange. From there, I moved on to manage my own $800 million hedge fund, where I had 20 profitable years in a row. And, I’ve been featured in the book Market Wizards, alongside investors like Paul Tudor Jones. But these days, rather than just trading for billionaires, I spend a large part of my time helping regular investors make money from the markets. My goal with these essays is to give you insight on the most interesting areas of the market for traders right now. Let’s get right into it… |
With just a few weeks left in the year, the market is quickly turning its attention to 2022…
Right now, analysts at all the big investment houses are busy crunching numbers and tweaking their models to see which sectors should outperform next year, and which ones to avoid.
When it comes to predictions for 2022, a recent news article from Bloomberg really caught my eye…
It mentioned these same large investment houses are predicting that the S&P 500 will range from 4,400 to 5,300 at the end of next year – a 20% spread. Bloomberg noted that this is the second-widest spread in a decade.
Sure enough, making year-out predictions is a tough deal at the best of times. Especially when it comes to the markets…
However, this broad range of forecasts and opinions for 2022 shows just how much uncertainty (and opportunity) is still out there.
A big part of that unknown has to do with interest rates. With the Fed’s meeting next week (December 14-15), a lot of the market’s focus will be on the speed of the bond-buying taper and the timing of interest rate rises.
As I noted recently, in just a few months the market has gone from factoring in one potential rate rise next year to most likely two (and potentially three).
Given the immediate impact of short-term rate moves, it’s only natural for consumers and investors (whether they’re homeowners or stock investors) to focus their attention there. But these same investors also need to remember that short-term rates represent just one part of the yield curve.
When I started out in the markets, the 30-year bond was the grand-daddy of the market. It was the one that everyone watched. Now, for me, it’s ten-year bonds… they’re something I follow diligently.
For those heavy hitters that control (and allocate) big licks of capital, it’s something that they watch closely too…
That’s because it tells you what the market expects the real cost of money to be over the medium term… not just over the next year or so. And that flows through everything from the interest people pay on their mortgage to student loans.
Plus, it has major implications for the market.
If the market expects rates to rise over the short term – but remain steady (rangebound) over the medium term – any pullbacks in 2022, while potentially sharp, could still be short-lived.
And, with just one pullback this year greater than 5%, the odds tell us that the chances of this scenario repeating for another year seem far less likely. So, we should prepare ourselves for at least one (or more) bigger pullbacks as we head into next year.
The other major unknown will continue to be COVID… Not just the seemingly inevitable emergence of new strains, but how it affects the supply chain.
Everywhere I look, new cars remain in short supply. And those that are patient enough to wait months on end for their delivery could flip them for profit when they finally receive them. This shortage carries over in countless other products too, from refrigerators to dishwashers.
Knowing when, and how, supply will catch up with demand is simply too hard to quantify. With a global supply chain and the pandemic, no one can reasonably know when things will get back to any type of equilibrium.
That all sets up 2022 as an intriguing time for the markets…
With so many variables up in the air, it means that traders will have to be vigilant and nimble. That means not simply owning the same old mega-cap high profile stocks just because you’ve always owned them.
2022 is going to throw up plenty of one-off and thematic trading opportunities. Your job as a trader (or investor) is to make sure you’re ready for them. And my job is to highlight them for you.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
P.S. One of the biggest opportunities of the year starts next week. In fact, it only happens four times a year… so you won’t want to miss the last one for 2021.
It’s a week-long period of extreme volatility in the markets that I call the “7-day blitz.” Better yet, my favorite way to trade it uses just one ticker…
A large percentage of the $274 million in profits I’ve generated during my trading career has actually been from that one ticker. To find out what it is, and how you can trade it, I’ve put on a special presentation for you right here.
Reader Mailbag
Do you have any predictions for the market next year?