Closing Thoughts for the Week

During the first half of the week, growth stocks attempted to recover some of their massive underperformance from the prior week. But value recaptured the flag and powered ahead once again. Value is now outperforming growth by more than 8% on the year as the markets reprice expectations for central bank policy.

There’s momentum to go even faster than the 3 rate hikes forecasted earlier and that had a lot to do with the mid-week sell-off last week. The sharp rise in yields ignited a huge rotation into cyclical reflation trades. The move in value stocks is of particular interest because we’ve seen this story play out a couple of times over the past year. There’s little indication that conditions for equities are breaking down here, just a broad rotation.

We got a modest Santa Claus Rally on light trading volume as expected. The first part of the new year has traditionally had the potential for some early volatility as investors reset their portfolios as well as their calendars. The Fed and inflation will remain the major themes in 2022. I suspect that’ll lead to increased bouts of volatility.