Shareholders traded on macroeconomic factors rather than the Governmental Treasury’s preconceptions for stimulus spending after poor November payrolls data was released, reversing a months-long trend in which investors sold on economic fundamentals rather than the Federal Reserve’s expectations for economic stimulus.
The 60-day correlation between S&P 500 e-mini futures and the Citi Economic Shock Index, which compares actual data releases to analyst expectations, has been primarily negative during the epidemic. That has begun to improve in recent months, with the connection becoming more positive.
Inflation has reached its highest level in almost a decade, thanks to supply chain difficulties, rising commodity prices, and the emergence of new Coronavirus types.
It’s even driven Fed Chair Jerome Powell to drop the word “transitory” from his vocabulary, signaling that rising prices aren’t going away anytime soon. The Fed chair also suggested that a faster rate of unwinding the central bank’s bond purchases could be considered.
The first test of this pivot will be the November payrolls report. Last month, nonfarm payrolls climbed by 210,000 people. The consensus figure was 550,000 people. The magnitude of the miss surprised traders, especially considering November is traditionally a whole month for the labor market.
Traders added more than $150 billion to the market capitalization of GameStop, AMC, and 48 other companies at the start of the year, equities that Robin Hood put on a restricted trading list because they’re volatile.
Stocks used to function like this: you provided some money to a corporation, which used it to build a railroad, and then paid you a dividend as a return. Perhaps the premium would increase in good times and decrease in poor ones, but if you bought blue-chip stocks in good steam railroads, you anticipated receiving your dividend. The present value of that endless stream of dividends could then be calculated using simple math, and that’s what you’d pay for the stock.
Then other firms realized that rather than paying dividends to shareholders, they could invest the money in constructing more new tracks and extending their railroad empire, allowing them to pay even higher dividends in the future. Back in the day, this was a contentious concept! But it worked so well that it would now be unusual for a fast-growing tech business to pay a dividend when it went public. Corporate profits are now mainly used to increase the size of the firm.
In principle, this will come to an end: the company will grow so large that it will have more money than it can spend to continue developing, so it will begin to return cash to shareholders in the form of dividends or stock buybacks.
Subramanian of BofA believes the S&P 500 has a better chance of correcting in 2022:
The Central Reserve’s trend toward higher rates, as per Savita Subramanian of BofA, puts stock investors in jeopardy, and the likelihood of a correction in the S&P 500 next year is “elevated.”
In an interview on Friday, BofA Securities Inc.’s head of U.S. equities & quantitative strategy stated, “We are in a scenario where the dividend yield on the S&P 500 is below where cash yields are likely to be in a year or two.” “Our economists predict eight rate rises over the next two years.”
“You don’t necessarily want to hold the entire S&P 500,” she said, adding that investors should purchase firms that can weather rising rates and market turbulence. “I believe the chances of a 10% correction in the short term or over the following 12 months are high.”
The BofA strategist says she doesn’t “want to come out as too pessimistic” and believes stock indices will escape losses. She stated, “Our market outlook is flat.” “It’s going to be a hard slog.”
Subramanian predicted the S&P 500 Index would be around 4,600 by the end of 2022 in a research note published Nov. 23, up somewhat from yesterday’s finish but down more than 100 points from a peak set in November before the omicron strain of the coronavirus appeared, disrupting global markets. According to the memo, she advised investors to avoid consumer equities and instead invest in energy, health care, and financial stocks.
“This reminds me of the year 2000,” she remarked, “when we all regarded a negative equity risk premium as usual.” “This isn’t right. Negative real rates are unusual, and I believe they are signaling something is wrong.”
The impending rise in interest rates will demonstrate that “the bubble right now is not inequities,” according to Subramanian. “It’s in bonds,” says the narrator.
Despite a strong year, Exxon is planning below-inflation pay raises in the United States:
Despite a remarkable turnaround in profitability over the previous 12 months, Exxon Mobil Corp. will grant most U.S. employees salary increases below inflation in early 2022. According to a corporate document reviewed by Bloomberg, staff who behaved with “merit” will see their compensation increase by an average of 3.6 percent. According to the paper, employees in the so-called upstream division, which digs for oil and natural gas, would receive the most significant average raises. However, all compensation choices will be based on individual performance. “One of the numerous things we look at is inflation.”
The wage raises are just for Exxon employees in the United States who are not covered by a union contract. As per Norton, over a third of such office workers received a promotion and a 5% rise on top of their regular pay.
The wage hikes reflect how many white-collar professionals aren’t getting the same raises as other groups like truck drivers and industrial workers, despite labor shortages and rising prices.
Exxon’s salary increases came after a trying two years for the corporation and its employees. The corporation stopped compensation and temporarily discontinued its 401(k)-savings plan match in the United States.
This year, Exxon’s financial performance has significantly improved. On top of boosting a dividend that was already the third-largest in the S&P 500 Index, the business announced a $10 billion share repurchase program. The company initiated a $10 billion share repurchase program on top of lifting a dividend that was already the third-largest in the S&P 500 Index. Third-quarter earnings and cash flow were the greatest since 2014 when oil traded for more than $100 a barrel.
According to Chief Executive Officer Darren Woods, Exxon’s goal of reverting to yearly compensation hikes should “encourage” staff. His comments occurred during a town hall meeting where he was asked about the company’s “serious attrition difficulties.”