Barron’s Weekend Summary: Inflation will rage and stocks will stumble in the first half of 2022, as the Fed begins to raise interest rates
Cover Story:
The consensus of the 10 investors on the Barron’s Roundtable, which met this year on Jan. 10 suggests that inflation will rage and stocks will stumble in the first half of 2022, as the Fed begins to raise interest rates, although the year’s second half could bring more stability and positive returns. Their forecasts for the S&P 500 index range from a double-digit loss for the year to a gain of 8% or so, plus dividends, with most panelists in the middle. The ten investors also predict that momentum investing is out wand that research into company fundamentals is back.
Tech Trader:
While the Biden Administration’s recently signed $1 trillion infrastructure bill is targeted in part at expanding rural broadband access, Dish (DISH) and DirecTV remain the only pay-TV options in some parts of the country. That’s likely enough to keep regulators from approving any deal between DirecTV and Dish Network
The Trader:
Like many software stocks, Adobe has had a very tough couple of months. Since peaking at $688.37 on Nov. 19, the stock has slid 24%, even worse than the iShares Expanded Tech-Software Sector ETF’s (IGV) 19% drop over the same period. Some of the decline is simply a result of shifting sentiment—the prospect of rate hikes has a way of making investors reconsider stocks with high valuations—but Adobe’s pain has been well earned.
-More than interest rates, investors should be worried about earnings. December’s retail sales data, released on Friday, declined 1.9%, missing forecasts for a 0.1% decline. It may be nothing—a temporary decline caused by the Omicron variant and early holiday shopping. But it also suggests that the fourth quarter fizzled out, which could have an impact on earnings, says Tracie McMillion, head of global asset allocation at Wells Fargo Investment Institute.
Features:
-To stay independent, retirees should be tech-savvy and focus on their goals, whether it’s fitness, learning new skills, social interactions, or something else, says Tom Kamber, executive director Older Adults Technology Services from AARP, which creates technology programs for seniors. If a retiree wants to own only one device, Kamber recommends using a simple, portable device with a large screen that allows typing such as a tablet or Chromebook with a keypad.
-Angi could be the next Uber. The company has spent the past 25 years using internet ads to match homeowners with prescreened plumbers, carpenters, and landscapers. It was a decent business, but the model stalled during the pandemic. Overworked contractors, faced with overwhelming demand, have had little need to pay for advertising. So far, investors aren’t paying attention. Angi stock trades for just 1.8 times the $2.29B in revenue that Wall Street expects the company to generate in 2023. That compares with Angi’s five-year average of more than five times year-ahead revenue.
European Trader:
-Activist shareholder Third Point argues that Royal Dutch Shell would be worth more if the European oil company were broken up. But if the business remains whole, two key factors could enhance its value—the promise to return 20% to 30% of its cash flow from operations to shareholders in dividends and buybacks to 2025, and its shift to low-carbon energy.
Emerging Markets:
-Russia is a buy, if you forget about the little business with Ukraine. The VanEck Russia exchange-traded fund has plunged by a quarter from a late-October peak. The ruble is off more than 8% against the dollar. Oil prices, which usually drive Russian assets, are about even over that period. As Russian-Western diplomatic talks ended without visible progress, Russian stocks bounced, then sank back. Brent oil jumped 3%. But an agreement to jaw further is a bullish signal given Russia’s downtrodden valuations, says Christopher Granville, head of global political research for independent analyst TS Lombard.
Commodities:
Copper prices, for one, rose 0.2% this past week, their fifth gain in six weeks, and closed at their highest level since October, a good sign for the economy in general and mining stocks in particular. Concerns about inflation, which hit a nearly 40-year high in December, and tighter monetary policy have pushed investors out of growth stocks and into value, and mining stocks have been among the beneficiaries. The Metals & Mining ETF has gained 5% during the first two weeks of 2022 to $46.98, near its previous highs.
Streetwise:
Jack Hough recommends to Buy the dip, as J.P. Morgan’s strategists wrote early this past week. As calls to courage go, it wasn’t exactly Churchill during the Blitz. The dip in this case was a 2% decline, year to date, in the S&P 500, bringing its 10-year gain to 261%, not counting dividends. Also, many of the biggest individual dippers this year have been thinly profitable highfliers, like cloud player Snowflake, or assets that are backed by suspended disbelief, like crypto.