The Fed: RIP Transitory Inflation

Today is Thursday, December 16, 2021.

The Fed: RIP Transitory Inflation, Welcome New Policies

Stocks rebounded on Wednesday after the Federal Reserve announced a major policy shift to end its pandemic-era bond purchases.

Details: The Fed will now double the reduction of its asset-purchase program, with plans to completely phase out the purchases as early as March. Additionally, central bankers penciled in at least three interest rate hikes in 2022, although the current rates will remain unchanged at this time.

Background: During the pandemic, the Fed was focused on achieving maximum employment and increasing inflation, which Fed Chair Jerome Powell described as “transitory.” That phrase is no longer in use. While the Fed sees the Omicron variant as a risk, it is clearly ready to make some changes.

Quote: “The path of the economy continues to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remain, including from new variants of the virus.” - Federal Open Market Committee statement.

Analysis: Stocks and even cryptocurrencies responded positively to the news on Wednesday, although there is some concern that this good news was already priced in the market.

Final Thoughts: Is it too little, too late for the Fed to stop inflation?

Notables

Notable Earnings Today: Adobe (Nasdaq: ADBE), FedEx (NYSE: FDX), Accenture (NYSE: ACN), Good Times Restaurants (Nasdaq: GTIM), Jabil (NYSE: JBL), Steelcase (NYSE: SCS), Worthington Industries (NYSE: WOR).

Notable IPOs Today: The Generation Z ETF (Nasdaq: ZGEN), Sangoma Technologies Corporation Common Shares (Nasdaq: SANG), Immix Biopharma, Inc. Common Stock (Nasdaq: IMMX), Guru Favorite Stocks ETF (Nasdaq: GFGF), Integral Acquisition Corporation 1 Class A Common Stock (Nasdaq: INTE), Bionomics Limited American Depository Shares (Nasdaq: BNOX).

Notable Equity Crowdfunding Campaigns Ending Today: Shaman Productions (Fundanna).

Notable Economic Events Today: Jobless Claims (8:30 a.m. ET), Building permits (8:30 a.m. ET), Housing starts (8:30 a.m ET), Philadelphia Fed manufacturing index (8:30 a.m. ET), Industrial production index (9:15 a.m. ET), Manufacturing PMI (9:45 a.m. ET), Services PMI (9:45 a.m. ET).

Supply Chain Problems Hammer Lennar Earnings

Shares of Lennar Corporation (NYSE: LEN) fell 5.56% in after-hours trading on Wednesday after the homebuilding giant reported mixed earnings.

Financials: Lennar reported earnings per share of $3.91, which was below estimates. However, its revenue of $8.4 billion was better than expected.

Headwinds: A mixture of supply chain constraints and labor shortages damaged the results. For example, the cost of lumber went up. Demand was also weak, with new home orders increasing by just 2%.

Quote: “During the quarter, our homebuilding machine continued to be laser focused on production, even while our cycle time expanded about two weeks from the third quarter driven by rapidly changing supply chain issues,” - Jon Jaffe, Co-Chief Executive Officer and Co-President of Lennar.

Final Thoughts: The entire home-building industry is impacted by these economic forces. With that being said, Lennar’s stock has a low price-to-earnings ratio, which signals a good value.

Canadian National Railway Gets Hedge Fund Interest

As investors look for good stocks to survive this era of inflation, Canadian National Railway (NYSE: CNI) could be a decent pick.

Numbers: Shares of Canadian National Railway are posting a return of about 16% in 2021. It has been a good year for investors of the stock.

The Good: The company posted strong earnings in October. Since then, hedge funds have been buying into the stock.

The Bad: While the stock traditionally raises its dividend yield over time, it is still only about 1.5%, which is mediocre for the sector.

Final Thoughts: Canadian National Railway is expected to release earnings in late January. Will it be another successful report for the company?

Trends to Watch

Happy Holidays: Millennials and Gen Z are planning to spend thousands on cryptocurrency, NFTs and metaverse land as holiday gifts (CNBC)

Get Your $20: Kraft will pay you $20 not to make cheesecake for Christmas (CNN)

Token of Appreciation: Securitize Launches First Tokenized S&P Index Funds (Crowdfund Insider)

Speak Up: A new trading app wants to give retail investors a voice in activist campaigns against big corporations (Markets Insider)

Makes Sense: SEC Floats Rules to Shore Up Money Markets, Curb Insider Trading (The Wall Street Journal)

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