Wall Street is getting greedy again

The CNN Business Fear and Greed Index, which measures seven indicators of Wall Street mood, is now showing signs of greed, with three of those at peak greed levels. Just a week ago, the index was showing fear warnings – and a month earlier, it was in extreme fear territory.
Sentiment and trading activity on Wall Street have both been choppy as investors deal with ever-changing COVID developments. Still, last year was great for investors: The S&P 500 gained about 27%, while the Dow and Nasdaq each gained about 20%, marking the market’s third straight winning year.

It hasn’t been an easy ride. But the market sentiment has recently turned strongly back into bull mode, with sentiments showing a once-over.

Investors are clearly not overly concerned that the Omicron version of COVID-19 will have a major, lasting impact on economic growth or corporate earnings. Nor are they concerned about potential interest rate hikes from the Federal Reserve.

“We expect the Fed to raise rates, but its cumulative response to inflation is more muted than ever,” analysts at BlackRock said Monday in a 2022 market preview report.

This echoes the overall view among experts that there is no need to panic too much about these various risks. According to data from Refinitiv, the consensus on Wall Street estimates that S&P 500 profits will increase by about 11% in 2022.

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The blow to President Joe Biden’s “Build Back Better” social spending bill, which passed in the House but stalled in the Senate, may not have dampened growth either.

“Traditional market wisdom has naturally focused on the resurgence of Omicron, the potential death of ‘Build Back Better’ and how often the Fed will raise rates. But these are risks to a much more likely central scenario that looks very good,” Main Christopher Smart, global strategist and head of the Barings Investment Institute, said in a report on Monday.

Smart noted that the Fed is unlikely to raise rates too aggressively, meaning the US economy could continue to grow this year with an annualized growth rate closer to 4%.

Market worries of 2021 may soon go away

He also predicts that companies will “produce substantial profits that they reinvest in their own development and vaccines that help tame new forms of the coronavirus.”

Smart added that “supply chains should return to normal during the year, demand in emerging markets should eventually benefit from a global recovery and even China should restore order in its asset and tech sectors.”

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In other words, almost all major market and economic concerns of 2021 may be over.

Yet the stock is already rallying towards the end of last year in anticipation of smooth sailing this year. That’s why some are predicting more muted gains for the stocks in the coming year.

“2022 could lead us to boring again – but boring does not mean smooth sailing,” Robert Teeter, managing director of Silvercrest Asset Management, said in a report on Monday. “Investors should expect a early 2022, with shares to rise about 7%, primarily driven by earnings gains.”


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