Today is a “quadruple witching” and index rebalance. This means that options and futures on indexes and equities expire today. Additionally, the S&P Dow Jones Indices will have its quarterly rebalance on the market close on Friday. Expect elevated volumes on the opening and closing auctions relative to historical averages.
Interest rates are expected to increase in 2022
If you’re looking to borrow money, you may want to do it now before rates go up. On Wednesday, the Fed announced that it’s ramping up the battle with inflation and expects to end their asset buying program earlier than anticipated and will favor raising rates earlier in 2022.¹ The Fed will scale back the amount of Treasuries and mortgage backed securities purchased by $30 billion a month. The tapering process is expected to be completed by the end of March.²
Additionally, a majority of members of the Fed’s rate setting committee now expect that interest rates will rise by 3/4 of a percent or more next year.³ The timing of the first rate hike will be dependent on the path of the job market. Futures markets are pricing in the first 1/4 point rate increase by May of 2022 with a 50/50 chance it happens in March.⁴ The Fed stated that economic growth is expected to come in next year at 4%, an increase from 3.8% that was projected in September. On Wednesday, the market ended up higher after commentary from Jernone Powell after he said, “Economic developments and changes in the outlook warrant this evolution of monetary policy.”
Dara Khosrowshahi, CEO of Uber Technologies, said that he is confident the company’s business will reach record highs in 2022. Last month, Uber reported earnings and gave adjusted EBITDA guidance of $25-$75 million for the fourth quarter. In an interview with Bloomberg Television on Tuesday, Khosrowshahi stated that EBITDA for the fourth quarter will be near the high end of guidance for the current quarter that the company issued in November. Khosrowshahi also stated that the company expects long term profit margins of 5% on food delivery. Furthermore, Khosrowshahi stated that business is back to 90% of what it was pre-pandemic and he expects there to be less activity in mergers and acquisitions by Uber in 2022.⁵
Tesla to accept DOGE for merch
On Twitter, Elon Musk announced that Tesla will start accepting Dogecoin (DOGE) as payment for some merchandise on a trial basis. Musk did not name the specific items that would be made available for purchase via DOGE. This news sent DOGE coin up over 20% on Tuesday.⁶ In a related story, Elon Musk was named Time’s Person of the Year for 2021.⁷
Ford Motor Co aims to unseat Tesla
This week, Ford Motor Co CEO Jim Farley stated in an interview with Bloomberg Television that the company has ambitions to overtake Tesla (TSLA) in electric vehicle (EV) sales in North America. According to forecaster LMC automotive, Tesla is expected to make two thirds of electric vehicle sales in North America this year. In the same forecast, Ford is projected to be fourth among EV manufacturers this year behind Tesla, Volkswagen (VWAGY) and General Motors (GM). Farle said that Ford is targeting 600,000 EVs sold in two years. To meet this goal, the company plans on doubling capacity at its Dearborn Michigan EV Factory to build elective F-150 lightning pickup and is also boosting capacity for its electric Mustang factory in Mexico.⁸
Largest risk to equities in 2022?
According to a survey from Bloomberg News, fund managers' surveys stated the largest downside risk to equities next year would be a knee jerk policy shift by central banks to combat inflation. The survey was conducted with 106 fund managers across the globe. Other downside risks include runaway inflation and the continuation of the pandemic with new variants. Over 40% respondents said that a more robust economic expansion would be the main upside catalyst for next year. 24 percent of respondents stated that they expect value stocks to outperform the market next year.⁹
About the Writer
My name is Allen Spence and I have been working in the retail brokerage industry for over 16 years. I joined Alpaca in March of 2021 and am now the Manager of Alpaca Trading Services. Before joining Alpaca I have worked in a retail branch environment, call center for active traders, and spent over seven and a half years as the team lead on an equity trading desk for a large regional broker dealer. I’m excited to be at Alpaca helping bring the markets to investors worldwide. I live in Florida and enjoy traveling and spending time with my family.
Alpaca is a globally distributed financial technology company that is democratizing global access to financial markets starting with our API-first stock brokerage. Alpaca offers commission-free stock trading via API, a suite of developer APIs for brokerages, advisors, and startups, as well as a market data API.
This article is solely for informational purposes only. Alpaca does not recommend any specific investments or investment strategies. Investments in securities involve the risk of losses and past performance does not guarantee future results. Before investing you should carefully consider your investment objectives, time horizon, and overall risk tolerance as well as the information stated in the product offering prospectuses.
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- Fed Doubles Taper, Signals Three 2022 Hikes in Inflation Pivot. Bloomberg. Dec. 15, 2021.
- Stocks Jump on Bets Economy ‘Can Handle’ Fed Hikes: Markets Wrap. Bloomberg. Dec. 14, 2021.
- Uber CEO Says Ride-Hailing Will Hit All-Time Highs Next Year. Bloomberg. Dec. 14, 2021.
- Inflation is still red hot, and it's forcing the Federal Reserve into a new game plan. NPR. Dec. 15, 2021.
- Fed funds futures price in interest rate hike by May 2022. Reuters. Dec. 15, 2021.
6. Tesla to accept Dogecoin as payment for merchandise, says Musk. Reuters. Dec. 14, 2021.
7. TIME: 2021 Person of the Year: Elon Musk. TIME.
8. Ford Targets Tesla as It Seeks to Build 600,000 EVs by 2021. Bloomberg. Dec. 14, 2021.
9. Central Bankers Are the Biggest Risk to Stocks in 2022, Survey Finds. Bloomberg. Dec. 14, 2021.