Policy tailwinds may turn into headwinds in 2022, but economic fundamentals likely to dominate
The U.S. stock market was supported by tremendous fiscal stimulus in 2020 and into 2021 and may face some challenges as support slowly moves to the sidelines, but the continued economic recovery will likely be the most important driver for markets into 2022.
- Stimulus checks to businesses and households should be replaced by a pick-up in employment and economic growth.
- Direct government spending outside stimulus checks may pick up but will likely have a minimal near-term stimulus effect.
- Potential tax increases are a larger concern, with markets focused on higher taxes on corporations, which would pull from profit growth.
- While higher business taxes may contribute to choppier markets, the corporate tax rate is likely to remain among the lowest in the U.S. in the last 70 years even if increased.
- For more on LPL Research’s policy outlook for the rest of 2021 and into 2022, see today’s Weekly Market Commentary, available at 1p.m. ET.
U.S. equities open mixed with the S&P 500 Index within a fraction of a new all-time high
- The Nasdaq Composite is off a fraction as we begin a new trading week.
- European markets are higher through midday trading as the Euro STOXX 50 is up 0.3%.
- Asian markets finished their session mixed as Hong Kong (Hang Seng) stocks are almost 0.5% lower.
The S&P 500 Index gained 0.6% last week but was still unable to eclipse record highs from May 7. Key levels to watch this week will be 4238 (intraday record high) and the 50-day moving average (currently at 4138). The index closed Friday at 4229.89.
This week the following economic data is slated to be released:
- Monday: Consumer credit report (Apr.)
- Tuesday: National Federation of Independent Business (NFIB) Small Business Index (May), US Bureau of Labor Job Opening and Labor Turnover Survey (JOLTS)(Apr.), trade balance (Apr.)
- Wednesday: Wholesale inventories (Apr.)
- Thursday: Weekly initial and continuing claims, Consumer Price Index (CPI)(May), hourly earnings and workweek statistics (May), Treasury budget (May)
- Friday: University of Michigan consumer sentiment (Jun)
Policy Shifts May Challenge Markets
LPL Research contends that policy tailwinds may turn into headwinds in 2022, but economic fundamentals are likely to dominate. Learn more in this week’s Weekly Market Commentary.
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