Don Quixote is purported to have said: "if these dogs are barking, it means, Sancho, we are moving ahead!" A lot of stocks in a lot of sectors have barked, and have been barking, for some time. In this case, with so many mutts a lot less husky than earlier in the year, we may be witnessing the final barking.

Pixabay

It's also a characteristic almost disconnected from all underlying fundamentals (just more reason to suspect declines as 'seasonal / tax / technical', not based on individual assessments, though of course those vary between stocks).

So the 'rubber meets the road' now that the finale of 2021 tax-selling settling before year-end is complete. However while it's clearly still going to be awhile longer before one can sense how heavily the Fed will 'tread' on most financial assets (that includes equities and housing too), this will be around the bend. I do realize that trades made going forward settle in 2022, so actually some big stocks with solid gains still, where a holder wants to re-balance things, might be sold anytime going forward knowing that and tax due is over a year off.

I read with interest the history of the Fed expansive policies and concur that a one-time President of the Kansas City Fed (Hoenig) was a constantly correct dissenter toward 'money printing other than emergencies', ostracized so often and in hindsight proven correct. Greenspan was a bit complicated (that's kind) and Bernanke beat Hoenig at every chance, prevailing expansive stimulus.

The irony of this is that Hoenig properly worried that 'low interest rates' would exacerbate the social divisions that stratify our society, as we now know well. It was not just about debt servicing or an inability to back currencies in varying ways (like Gold) aside printing money. It's an irony because 'this' Government now pretends money printing or low rates are helping average citizens when, in-reality it 'sort of' does, while sucking them into not only excess spending but financing such discretionary purchases with cheap rates (unless they are the segment using credit cards in ways beyond just convenience).

So the Government purporting to support the broader reflection of the Country (either Party has done this) failed to intellectually grasp where this 'trap' leads, and that takes me to the current Fed, which not only pledges to hike rates (the nuances will depend on COVID being contained, or so it appears).. but will be a shoe-in policy given the likely-forthcoming Republican control of both Houses of Congress late in 2022. As the stock market is a discounting mechanism, it's quite likely that both rate hikes (already stated) or a conservative groundswell of 'responsible' spending, will be anticipated. The problem is that both Parties are heavily influenced (if not beholden to) the beneficiaries of 'easy money'. If neither is particularly 'fiscally conservative' and rates firm, doesn't this make a difficult menu for the S&P to flourish. Yes that's so. Hence caution urged for a while now, and even as we look for a rebound we question sustainability.

It will be challenging, and quite likely S&P will give the Fed a hint of treading lightly, lest a draconian move upend the 'apple cart' rather precipitously. That might help formulate significant stock market 'routs' before the key mid-terms, essentially to preempt the Fed moving in heavy-handed ways, by telegraphing to the Fed what's going to happen if they do. Hence not yet, this is premature, but gives one idea why I'm concerned about sustainability of mega-cap rallies.

I know 'Roaring '20's' and so on. But that's part of the focus on limited big-cap participation other than holding core long-term stocks (playing only with house money, and that's the Apples, AMD's, or Chevron's of this world), with small cap and speculative holdings looking for rebounds and budding uptrends that reflect 'National' focus on (mostly) technology that's disruptive in years ahead (AAPL, AMD, CVX).

Even Ford, along with AEHR, would go in this description, and of course any stock like the very speculative but interesting 'small bets' like Canoo, Rockley or even LightPath which remains one more interesting tiny stock. Something like biotech Sorrento is its own ongoing enigma, with varying outcomes. The tsunami of COVID and their CoviStix claiming to detect it, should have made it a shoe-in for FDA approval by now, although suspect it's still forthcoming (F,AEHR, GOEV, LPTH,RKLY,SRNE).

By the way arguments that nobody needs testing as COVID is everywhere now isn't valid. Especially for the unvaccinated or businesses or families that care, a positive test is the first step to getting the Pfizer/Merck pills or monoclonal antibodies, especially if a person is at high risk for serious illness. Plus, if your tests are negative, you don't have to isolate so can continue work, travel etc. (PFE,MRK).

In-sum: 

Tuesday's market was 'split' from the start, although we don't want to make too much of it since the S&P's up-then-down reversal could also reflect a bit of tax selling, by those who think getting 'gains' in this year to offset loss, was more important or useful that pushing the gains into a new tax year, with no affirmation as to whether or not capital gains rates will be modified or not.

Overly-expansive monetary policies eventually drive the lower-economic class into poverty, and diminish the role of the middle-class in domestic 'balance'. If however, the normalizing of monetary policy is so dramatic as some fear, then a risk is that the wealthier classes also experience downward mobility. So now the trick for the Fed will be how to avoid a quagmire caused by their long-term policies which were expanded during the pandemic. Just awareness of all this is reason enough to be somewhat concerned about later 2022 activity, and for that matter may temper the expected seasonal lift at the year's beginning.

Conviction, or lack of bullish (or even bearish) conviction, isn't what S&P (SPX) and other action is about right now. The overall performance is miserable for funds (most of them) and neither 'overall' bullish or 'overall' pessimistic outlooks saw significant reward, unless the zeitgeist crowd sold into the buyback strength in the mega-caps, because (as oft-noted) that's what their insiders were doing (I noted for months buybacks were boosting price which please shareholders at the same time it was 'additional executive compensation' as they'd sell on it).

And that takes us to now. I misspoke about tax-selling ending yesterday (as if New Year's Eve wouldn't trade, which I knew better it would) as Tuesday was the last day for settlement (for gain or loss) this tax year. So does that mean we have a market that now simply moves upwards? Probably not exactly.

Concerns (fed by COVID and a Fed wanting to work-out of the corner they got the American people into for years, while also saving the day when necessary of course) are still with the market, and there is broad (maybe too broad) S&P assumptions about renewed upward behavior. Maybe, but it will be mixed.