Stock futures retreated Wednesday after the Nasdaq and Dow drifted under their lofty highs yesterday. Shares of tech giant Apple sank Tuesday afternoon before stabilizing around $180 per share Wednesday morning. Apple’s shares dropping coincided with a widespread investor pullback, with Tuesday’s intraday highs striking some stakeholders as a sign to sell.
Profit-taking patterns are predictable. When shares of growth companies like Apple and Tesla surge over a short period, some stakeholders take the opportunity to sell out for a profit. This floods the market with stocks for sale, applying downward pressure to the price. As such, analysts don’t believe Wednesday’s lower market open is a concerning sign for the economy.
Treasury yields have also stabilized Wednesday after spiking at the start of the week. On Tuesday, BMO Global Asset Management Co-Head of Fixed Income, Scott Kimball, told reporters that the high treasury yields aren’t surprising. Yields are “moving sharply higher today or in the very recent past, but they’ve been stubbornly lower when you compare them to what the inflationary talk has been,” Kimball explained.
“There’s been lots of discussion about runaway inflation, the Fed being behind the curve. All of that would translate into a long-end — the 10, 20, 30-year portion of the yield curve — that’s a lot steeper, or materially higher even in absolute terms than it is right now.”
Inflationary pressure and the recovering jobs market are the two factors most investors are eyeing at the start of the year. Recent job reports indicate that the US economy is getting back to levels last seen in February 2020, but inflation could keep the market slow and cautious. As such, many financial experts are turning to inflation hedges like gold and cryptocurrency to preserve their assets’ value.
December Private Payroll Report
Investors are optimistic today, thanks to an encouraging payroll report from ADP. The company’s data shows 807,000 private jobs returned in December, nearly double the 410,000 that analysts predicted by the end of the month. The leisure and hospitality sectors added the most jobs back in December. Economists consider this encouraging news after those sectors suffered economic downturns in 2020 and 2021.
The trade and logistics sector added 138,000 jobs in December. Low employment rates in the logistics industry have led to longer shipping times, higher costs, and ballooning inflation.
The job market isn’t back to pre-2020 levels yet, either. The short-lived but intense economic recession in 2020 wiped out millions of jobs and sent workers scrambling for new opportunities. Recent job reports in the US indicate a tight labor market. Employers are raising wages and expanding benefits to keep workers employed. Meanwhile, there were still 10.5 million job openings in November, even as the economy added back unprecedented payroll numbers.
“With labor market conditions already exceptionally tight, employment growth will continue to slow over the course of 2022 unless the labor force begins to rise more markedly,” writes Capital Economics’ senior US economist, Michael Pearce. Pearce points to growing medical concerns in the US and a potential wave of school closures as evidence that the economy could slow down again early in 2022.
Analysts will get another view of the job market later this week. The Labor Department will release its December jobs report on Friday, offering more context to the encouraging ADP numbers. Economists expect December’s unemployment rate to drop lower than November’s. Most experts agree that 4.1% unemployment is likely. However, this number is still concerningly higher than February 2020’s historic low of 3.5%.
Bitcoin as an Inflation Hedge
The cryptocurrency market had a banner year in 2021, but Bitcoin experienced a dramatic pullback in the final quarter. Bitcoin stakeholders sold out of the coin due to uncertainty regarding regulation in December. This sell-off dropped the standard 31% from its all-time high near $69,000 in November. The currency is currently trading for roughly $47,300 per coin, an 8% drop from last week.
Despite this pressure, crypto enthusiasts continue to sing the standard’s praises. “Short-term, there may be some volatility,” says George Tung of CryptosRus. “Long-term, inflation is going to be a continuing issue, and bitcoin is seen as the best hedge against inflation at this point.”
Bitcoin’s role as a safeguard against inflation is the strongest argument for its current value. The coin is artificially scarce, which makes it resistant to inflationary pressure. Goldman Sachs analyst Zach Pandl recently wrote that he believes Bitcoin will compete with gold in 2022 as a store of value asset.
“Bitcoin may have applications beyond simply a “store of value” – and digital asset markets are much bigger than Bitcoin – but we think that comparing its market capitalization to gold can help put parameters on plausible outcomes for Bitcoin returns,” writes Pandl.
Does Bitcoin have a future beyond acting as digital gold? It might not need to. If it secures even 50% of the inflation hedge market, coins would likely trade for upwards of $100,000.