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JPow Drops The Mic 🎤

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Good evening everyone and welcome to another Wacky Wednesday! 🤪

Things were slow-going until Jerome took the mic, and the entire market lifted. 🎤📈

All major indexes rallied over 1% after the Fed Chairman spoke. The Nasdaq surged 2.15% as the leading sector.  

CCMP zipped 33.93% to all-time highs after Entegris acquired the company for $6.5 billion. 

10/11 sectors traded in positive territory. The healthcare ETF $XLV vaulted 2.05% to all-time highs. Healthcare stocks like United Healthy, CVS Health, and Centene Corp closed at record highs as well. 🏆

The Federal Reserve announced on Wednesday that its bond buying will end in March, leading the way for three 0.25% interest rate hikes by the end of 2022.

Alt-coins like Avalanche, Elrond, and Helium roared today as Bitcoin and Ethereum stabilized. $BTC.X bounced 1.3% and $ETH.X increased 4.7%.

$LEE leaped 12.33%, $AXR ascended 15.55%, and $WAVES.X waltzed 16.7%.

Here are the closing prices: 

S&P 500 4,709 +1.63%
Nasdaq 15,565 +2.15%
Russell 2000 2,195 +1.65%
Dow Jones 35,927 +1.08%

Policy

The Taper Talk

The Taper Talk Featured Image

Jerome Powell might be the most powerful man in America — even more powerful than President Joe Biden, the entirety of Congress, all the men and women of Wall Street, those in the trenches of blue collar America… oh, and the many retail depthgrobblers that rely on his decisions to know when it’s YOLO-TIME. 🚀 🚀

Powell, the Chairman of the Federal Reserve, tendered the Central Bank’s offering to sky-high inflation, stagnant economic growth, and weaker-than-you’d-wanna-see consumer sentiment after the two-day Federal Reserve Open Market Committee meeting. What should you take away? Investors should be prepared for three rate hikes in 2022, with two more in 2023 and in 2024. 

Those expectations moved the “Dot Plot,” an illustration of how/when economists estimate interest rate increases. Yellow dots represent FOMC members’ expectations for interest rates. Bloomberg’s Dot Plot shows that the FOMC feels strongly about interest rates varying from 1.75% to 3% by 2024. Of course, we’ll have to move down the timeline to see what actually happens:

 To get there on this quicker-than-expected timeline, The Fed will halt asset purchases in March 2022That sets the stage for the first of many rate hikes in June 2022.

The news sent equities and crypto jumping, an indication that investors accept the risks that could come with future hikes. Although, the truth is that investors don’t have much of a choice, as we’ll still be living in a TINA (There Is No Alternative) market for years to come.

FAANG stocks rose to the tune of 1-3% after the announcement:

Crypto got a boost, too. The Global Crypto Market Cap, as measured by TradingView, rose from as low as $2.09 trillion intraday to $2.25 trillion as of this capture. In other words, crypto got a multi-billion dollar boost:

Powell also made two other important observations:

1) He dispelled concerns about “full employment. Powell insists that “prime-age employment is near full employment” — which is supported by the fact that the labor participation rate has remained pretty unchanged for the last year (and unemployment is approaching pre-pandemic levels.) However, the “labor shortage” might have more to do with…

2) Elevated asset valuations. It’s no secret that everything is expensive, including stocks and houses. Some 50-somethings jumped at the opportunity to secure an early retirement. It’s unlikely new retirees will reenter the labor force unless the market crashes (leaving their nest eggs in an unfortunate state.)

The S&P 500 rose in the face of Powell’s rate hike, even before achieving the traditional definition of “full employment,” inflation, and other concerns. The index came within a dozen points of notching a new all-time high today. The S&P 500 closed at 4,709.85



COVID

Student Loan & Mortgage Payments To Resume

Student Loan & Mortgage Payments To Resume Featured Image

Most federal students loan & mortgage borrowers have been given reprieve, or comfort in reduced payments, during the Covid-19 pandemic. However, that will change at the end of January, when “forbearance” will end for student loans and mortgages, affecting some 43 million Americans. 💰 💰

When questioned about extending the student loan payment pause, White House press secretary Jen Psaki said: “We’re still assessing the impact of the Omicron variant, but a smooth transition back into repayment is a high priority for the administration.”

The administration is expected to release more information on their approach in the coming weeks as they interact with borrowers to be assure that things are in place place to get payers ready for the changes.

The same will go for millions of homeowners, who were allowed to pause their mortgage payments for up to 18 months. However, the end of mortgage forbearance could bring about a “wave of defaults.” Of the 7.7 million mortgage borrowers who took forbearance, over 300,000 homeowners are still behind on their mortgage payments.

More progressive leaders in the Democratic party such as Elizabeth Warren (D-CT) and Alexandria Ocasio-Cortez (D-NY 14th District) have urged Biden to consider a continued forbearance policy, with both even suggesting that Biden should “eliminate student debt” in an effort to boost a generation downtrodden by the excessive cost of education.

With that being said, Biden looks unlikely to offer homeowners or former students a break.

It’s untold how the public will react to the return of business as usual. We’ll be watching this story as the deadline draws closer. 


Policy

Dems Punt Social Spending Bill

Dems Punt Social Spending Bill Featured Image

Democrats look ready to abandon their plans to pass President Biden’s flagship Build Back Better (BBB) plan this year.

Democrats will reportedly focus on voting rights legislation in lieu of the ambitious social spending plan. They simply don’t have the 50 votes in the Senate that they need (mostly because the pesky senators from Arizona and West Virginia are not jazzed about its potential impacts on inflation.) 📈 📈

There are fair odds that the Democrats will revisit the social spending bill later. That is, after they change Senate rules, whip their party into shape on other bills, and pass a budget that doesn’t suck. However, these changes strain the possibility of passing BBB during this Congressional term — much to the amusement of Senators Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ), who advocated against BBB.

For most investors, this situation means it’s probable that the current tax regime will be unaffected for tax year 2022. It also means that a controversial change to the wash sale rule (which would have involved crypto and commodities) might get pushed back, allowing scores of crypto maxis to tax loss harvest their 50% losses against 42,000% gains (just saying!)

In a practical sense, the inaction of Democrats has weakened their case to win a majority in the midterms in November 2022. Their odds, which were appraised as a coin-toss by users on PredictIt just weeks ago, have diverged. Bettors put their odds at re-securing both houses of Congress at just 12%:

Though bettors aren’t necessarily the most meaningful indicator of who will win or lose an election, it’s a classic example of “put your money where your mouth is” … and it’s easy to see why bettors wouldn’t be bullish on Democrats. They have inherited a tenuous sociopolitical situation, struggled to pass meaningful legislation, and have been unable to respond to Americans’ concerns about inflation and sky-high energy costs. Not all of that is their problem (JPow is really making or breaking their election odds here, huh?), but a large portion of it is. 

Ultimately, when you pair bettor sentiment with popular opinion polls, the factors that exist (including rising Covid cases) make it look like Democrats stand to lose in 2022. That means that changes to the tax regime, and effective progressive legislation, might not come to fruition after all.


Bullets

Bullets from the Day

Retail sales growth stagnates. Surprise! Inflation is bad. You probably don’t need to hear it from us if you’ve set foot in a grocery store, shopped for clothes online, or paid for home renovations in the last few months. However, the impact of high inflation has seldom been as clear as it was in today’s retail sales report. Retail sales rose slower-than-expected in November, only growing 0.3% MoM. Economists expected 0.8% in the month, so we’d call this a major miss. Read more in The Hill.

Bitcoin miner’s revenue rises 400%. After reporting their revenue today, CleanSpark closed the books on a record year for its Bitcoin mining biz, during which the company’s revenue rose 400%. The company’s revenues came in at $49.4 million for the year, but the company still booked a net lost of $21.8 million. However, those losses might not be long for this Earth. CleanSpark has scaled its hashrate from zero to over 1.3 etahashes/second in the last year. That means the company might have green in its future. Read more on CoinDesk.

Plant-based packaging company to SPAC. A plant-based packaging producer will make its debut through the Gores Holding VIII SPAC. Footprint, an Arizona-based company known for making plant-based packaging, will be valued at $1.6 billion after the deal closes. The company was listed on CNBC’s Disruptor 50 list, which names influential/groundbreaking brands. Read more on CNBC.

Airtable hits decacorn status. Collaboration and productivity software company Airtable has entered a club that few startups ever do: it is now worth over $10 billion, giving it the highly-prized “decacorn” status. The company raised $735 million at an $11.7 billion valuation. The company raised $270 million back in March at a $5.8 million valuation, meaning the new round has more than doubled its valuation. The company’s CEO, Howie Liu, says that the round will “bridge [them] to profitability,” and lead to an eventual IPO. The company’s annual recurring revenue is now over $100 million. Read more in Bloomberg.