I’m an investor in an early stage global macro fund. Each month, we publish a newsletter with our thoughts on the market and our fund’s performance. I’m now publishing an edited version of that newsletter here, so a broader audience can participate in the conversation.

The SP&500 closing print of 4766 was close to our EOY price target of 4750, which gives us confidence in our macroeconomic research and early modeling.  

Like November, December showed us a little bit of volatility as the steady march higher on the backend of Covid stimulus began to subside.  We saw a 200 point drop in the S&P 500 followed quickly by a 300 point rally; all in one holiday-shortened month. 

Our November letter highlighted that we believed the dip at the end of November was buyable and that the market was in a topping process, which could take a while to play out.  We reiterate that view as 2022 begins.  We sense that this mini-reflationary trade will play out through sometime in Q1, after which the market will have little choice but to price in rate hikes, a slowing economy, and valuations that are still far above average.

When we look back on 2021, we feel like the easy money passive trade is in the rearview mirror.  When we look forward, we feel as though the active trading (and stock-picking) is going to start to matter again quite soon.  We expect volatility in 2022, but are generally expecting the market to end (modestly) higher.  A meaningful pullback in H1 seems merited, given the plans of the Fed.  But now that more and more experts are assuming this will happen, the market may surprise us.

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