A short-term decline, then the third bubble in 100 years arrives, says the strategist. Here’s how to prepare.

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Among the dozens of central bank meetings crammed this week, the Federal Reserve is seen stealing the spotlight with a tapered start and hints of possible early rate hikes.

After the “worst inflation call in history” and his shaken credibility, President Jerome Powell will have to take the reins hard, said Allianz chief adviser Mohamed El-Erian. So we’ll see if a potentially tougher Fed pushes the S&P 500, which hit a new high on Friday despite nosebleed consumer prices, off Santa’s rally trail.

Let’s move on to our call of the day from a Stifel team, led by Barry Bannister, warning of another bubble for the ages, thanks to “poor monetary and fiscal decisions since COVID-19”.

And maybe take advantage of any Santa rally while it lasts, as the team sees a near-term correction bring the S&P 500 to 4000 lows by the first quarter of next year. . Then…

“Later in 2022-23E, we believe the ‘backdrop’ Fed could create the third bubble in 100 years, by 2023 at 6,750 for the S&P 500 (Nasdaq [approximately] 25,000), ”said the Stifel team.

“Populism (which the Fed and the Treasury seem to be embracing) leads to bad choices and even worse results. The crackdown on rates can again create a bubble that bursts (it always does), followed by a lost decade, ”he said.

He said investors should look to history to prove that this can happen. The S&P 500 fell almost 20% in the third quarter of 1998, before the dot-com bubble burst in 1999-2000. A “late” Fed tightening between the second half of 1999 and the first half of next year couldn’t stop it, Bannister and the team said.

“The same thing happened in the Roaring Twenties, with a -10.7% drop in mid-December-1928 as rates rose before the October-1929 crash,” the strategists added.

The only way to prevent such a bubble would be for the Fed to heed its own Financial Stability Report, in which it warns of the high risk appetite of retail investors and the high valuations of stocks and bonds. real estate, and “tilt hawkish”.

“Yet policy can come too late, and if the market goes ‘risk’ with a falling equity risk premium and the 10-year Treasury Inflation Protected Security (TIPS) yield remains depressed at -1.0 % due to global central banks, a PER [price-earnings] A convexity bubble in 2022-2023E could occur, ”they said.

While the bigger one might be a long way off, they do offer a guide to short-term survival. Bannister and his team said that if the S&P 500 and commodities weaken simultaneously – they expect that due to the strength of the dollar, slower growth in China, exit signals will the Fed and a tight global liquidity – investors can take refuge in the defenses of the S&P 500. Thus, health care, consumer staples, utilities and telecommunications are the safety points of the choice, for now.

The buzzing

We have the mergers and acquisitions on Monday. Pfizer PFE,
+ 5.42%
buys Arena Pharma ARNA,
+ 82.56%
in a $ 6.7 billion deal. SPX Flow FLOW software group,
+ 0.30%
agreed to a $ 3.8 billion buyout of Lone Funds.

South African researchers say that a two-step BNTX course from Pfizer and BioNTech,
+ 7.69%
The COVID-19 vaccine is about 23% effective against the omicron coronavirus variant, but can still prevent serious illness. Pfizer has also been upgraded to buy from UBS, which will see $ 50 billion in COVID franchise sales next year.

PTON platoon,
-1.51%
responded quickly to a plot twist in the ‘Sex and the City’ reboot which was partly blamed for some stock sales, with a new ad starring actor Chris Noth… back on his bike.

Monday is calm on the data front, but the rest of the week is sufficiently busy with retail sales and a few manufacturing gauges. The two-day Fed meeting begins Tuesday. Here’s a preview.

Time Magazine named Tesla TSLA,
-5.25%
CEO Elon Musk Person of the year.

Iron ore prices have risen amid speculation that China will provide a fiscal stimulus in early 2022, after senior officials in the country said in a weekend meeting that they wanted to stabilize the economy. economy.

Celebrity chefs such as José Andrés are among those bringing aid to Kentucky, which has been hit hard by a series of deadly and devastating tornadoes that have struck several states over the weekend.

Table

Bet on bitcoin? A survey by Jim Reid and other Deutsche Bank strategists found that older people are less optimistic about more earnings than younger ones.

The steps

DJIA actions,
-0.90%

SPX,
-0.74%

COMP,
-1.25%
slipped at the start of the session, and oil CL00,
-0.33%
is lower. It was a mixed day for Asian stocks, but Europe SXXP,
-0.43%
picks up, while bitcoin BTCUSD,
-5.60%
and other cryptocurrencies are softer. The slaughtered Turkish lira USDTRY,
-0.39%
was overwritten again after Standard & Poor’s warned of a downgrade. Then the central bank intervened.

Top tickers

Here are the most active tickers on MarketWatch as of 6 a.m. EST.

Teleprinter

Security name

TSLA,
-5.25%

You’re here

GME,
-12.97%

GameStop

AMC,
-18.00%

AMC Entertainment

DXY,
+ 0.16%

US dollar index

TMUBMUSD10Y,
1.418%

10-year US Treasury bill

AAPL,
-0.57%

Apple

ES00,
-0.85%

E-Mini S&P 500 Avenir

NIO,
-2.10%

Nio

LCID,
-1.09%

Lucid group

DJIA,
-0.90%

Dow Jones Industrial Average

Random readings

An Oregon elementary school called the cops over a friendly, but rude snack-stealing crow.

Fans mourn “Interview with the Vampire” author Anne Rice, who died at the age of 80. Here is his son’s farewell:

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