Economy Updates: Wall Street Expects Good Year Despite Lousy Start for Stocks

Last week, Jerome H. Powell, the Fed chair, confirmed a plan to raise interest rates “soon,” probably starting in March. But he gave few details on how high interest rates would need to go, or what the Fed might do about the trillions in bonds it has bought to lift the economy during the past two years.

“The Fed really changed its tone in the last month,” said Kathy Bostjancic, the chief U.S. financial economist at Oxford Economics. “It had been communicating that inflation had been transitory, and now they’re worried it’s not and that it will be more persistent.”

This has left investors feeling uneasy about the markets, which have started the year on a sour note. That said, the link between January trading and the rest of the year has been weaker recently. January market drops are fairly common, including in the previous two years, which ended up recording large annual gains.

Many Wall Street strategists are predicting that the market will end 2022 higher. David Kostin, the chief U.S. stock market strategist at Goldman Sachs, for instance, predicts that the market will end the year up 15 percent from where it closed on Friday. UBS’s top stock strategist, Mark Haefele, said in a note to clients on Thursday that he was also sticking to his year-end target: up 15 percent from the close on Friday. “We expect the equity rally to resume,” Mr. Haefele wrote in his note.

The market seems volatile, but its recent swings have been only slightly bigger than usual. During the past 60 years, the average high-low spread — the difference between the highest point of the day and the lowest point of the day as measured by the market-tracking S&P 500 index — has been 1.4 percent, said Howard Silverblatt, a senior analyst at S&P Dow Jones Indices. So far this year, that measure is 1.8 percent, about the same as it was in 2020, but far less than the 3 percent it averaged in 2008, during the height of the financial crisis.

The average investor has yet to be scared off. Bank of America wrote in a research note last week that its retail clients, as a group, put more money into the stock market than they pulled out. In the first three weeks of the year, individuals with accounts at Bank of America have bought $2.3 billion more in stocks than they have sold.

In the same time, though, hedge funds that use Bank of America to trade have sold nearly $3 billion in stock and bond funds than they have bought. “Retail clients remained the biggest buyers (as is typically true in January),” Jill Carey Hall, a Bank of America strategist, wrote in the note. “Clients bought the dip.”

One thing buoying optimism is that corporate profits have kept climbing. Analysts believe that fourth-quarter profits rose 24 percent for companies in the S&P 500 compared with the same period the year before, according to the market data service FactSet. Earnings are expected to slow this year, but still rise 9 percent in the first three months.

Strong earnings from Apple supported the market last week, easing fears that the tech industry’s period of fast growth may be coming to an end. Amazon and Alphabet, Google’s parent company, will publish their reports for the last three months ending December this week.

Another good sign: Sectors like financial stocks and industrials that are tied closely to the economy have done better than the market as a whole. Shares of General Electric, for instance, are down only about 2.5 percent since the start of the year. Wells Fargo’s stock price is up 2.5 percent in 2022.

“I don’t think there is a very big risk for a recession right now,” said James Paulsen, a strategist at Leuthold Group. “Then I don’t think it is a bull ender.”

• Long-term expectations about inflation.

• A large (and unequally distributed) surge in wealth worldwide.

• The growing ranks of retiring baby boomers who want to protect their nest eggs against the volatility of stocks.

And that has potentially huge consequences for public finances.

“If governments ever wanted to engage in an aggressive program of spending, now is the time,” said Padhraic Garvey, a head of research at ING, a global bank. “This is a perfect time to issue bonds as long as possible and proceed with long-term investment plans — and as long as the rate of return on those plans is in excess of the funding costs, they pay for themselves.”

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Economists expect growth across Europe to return to prepandemic levels in the first part of this year, but with the pace varying by country. A variety of factors will play a role in the speed of recovery, including pandemic restrictions and how reliant the countries are on manufacturing, which is still plagued by supply backups.

On the whole, Europe has been slower to recover than the United States, where the economy grew last year at the fastest pace since 1984, although inflation is taking a bite out of the recovery and people remain cautious about the coronavirus. The U.S. economy expanded 1.7 percent in the last three months of 2021, and 5.7 percent for the full year.

• Last week, Neil Young and Joni Mitchell pulled their music from the platform.

• This weekend, the star podcaster Brené Brown, who signed an exclusive deal with Spotify in 2020, said that she would not release any more episodes “until further notice.”

• Prince Harry and Meghan Markle, who also have an exclusive deal with Spotify, said that they expressed concerns about coronavirus misinformation on Spotify’s platform to the company last April.

“I am going to do my best in the future to balance things out,” Mr. Rogan said in a video statement posted late Sunday. He agreed on the merits of putting a disclaimer on episodes that discuss the coronavirus. He also thanked Spotify for its support: “I’m very sorry that this is happening to them.”

Beyond adding the content advisory notice, Spotify is also directing listeners to a page with information about Covid and has published its content policy rules. But Mr. Ek wrote in a public letter that the company must balance “creator expression” with “the safety of our users.”

“It is important to me that we don’t take on the position of being content censor,” he said in the letter.

Other tech companies have said similar things when faced with their own platform dilemmas. It hasn’t necessarily settled their critics’ concerns.

In January 2018, Mr. Berman, after being appointed by the Trump administration to lead the Southern District, named Ms. Strauss as his senior counsel, and she later became his deputy. Ms. Strauss, known for her understated style, was forced into the spotlight in June 2020 when William P. Barr, then the attorney general, sought to replace Mr. Berman with a Trump administration ally.

After Mr. Berman initially refused to step down, Mr. Trump ended up firing him, leaving Ms. Strauss as the acting U.S. attorney — only the second woman to lead the storied office in its more than 230-year history. The judges of the U.S. District Court in Manhattan later exercised a rarely used power to formally appoint her to the post, extending her tenure.

During her time as U.S. attorney, Ms. Strauss announced the indictments of prominent defendants like Ghislaine Maxwell, the former companion of Jeffrey Epstein, who was convicted of sex trafficking in December; and Steve Bannon, Mr. Trump’s former chief strategist, who was charged with misusing funds. (Mr. Trump later pardoned Mr. Bannon.)

Mr. Vance, the former Manhattan district attorney, began a new job on Monday as a partner at the law firm Baker McKenzie, leading its global cybersecurity practice.

“This moment of intense interest in cybersecurity” heightened Mr. Vance’s already considerable concerns, he said in an interview. As Manhattan’s chief prosecutor for more than a decade, Mr. Vance, 67, saw how technological developments can create new threats.

Rising tensions between Russia and Ukraine have raised the specter of ransomware attacks worldwide. “Tension between countries can lead to attacks by state actors against individuals and to businesses in other jurisdictions,” he said. “We have a much broader range of threat actors and sectors because we have high value, high dollar targets for ransomware.”

“To say this is top of mind for our clients is an understatement,” said Colin Murray, the chief executive of Baker McKenzie North America. In a recent survey of business leaders by the firm, about 80 percent said cybersecurity risk was a primary concern. “When facing attacks to infrastructure, coordination with the government is critically important to catch the bad guys,” he said. “Cy has a tremendous amount of experience in that area, having founded the Manhattan D.A.’s cyber unit.”

Mr. Vance declined to seek re-election after three terms as district attorney, handing over a long-running criminal investigation into Mr. Trump and his family business to his successor, Alvin Bragg, at the start of the year. The investigation is looking into whether the value of some hotels, golf clubs and office buildings were inflated to secure financing from potential lenders, The New York Times has reported. The inquiry could result in the first indictment of an American president in history.

During his time as Manhattan district attorney, Mr. Vance also prosecuted the movie producer Harvey Weinstein, who was found guilty of two felony sex crimes in 2020.

The rise in cases among the dockworkers somewhat parallels the surge of the Omicron variant across California, which now is apparently flattening.

Federal and state authorities have designated port workers as essential workers during the pandemic because of their critical role in maintaining the nation’s supply chain. There are 23,000 longshoremen working in West Coast ports, and 15,000 in Los Angeles and Long Beach.

The year began with about 150 new cases reported per day among dockworkers on the West Coast. By mid-January, that rate decreased to about 100, and by Friday it had fallen to about 60 new cases per day.

One positive test, though, ensnares multiple workers, as contact tracing identifies others who will have to quarantine. “It has a ripple effect across the work force,” Mr. McKenna said.

A record volume of cargo arrived on the West Coast in 2021, colliding with the advent of the Delta variant. At least 16 longshoremen died in 2021 and many more were hospitalized.

Omicron so far has packed a less powerful punch, Mr. McKenna said. There have been no deaths this year, he said, and longshoremen are less frequently hospitalized or are being released quicker than in the past.

Continuing court fights in other states this week illustrate just how elusive such cooperation can be.

In New York, an indoor mask policy was ruled unconstitutional on Monday, then reinstated on Tuesday when an appeals court judge temporarily stayed the lower court’s ruling. That was after state officials had already told school administrators to continue enforcing the rule for students and teachers anyway. (The mask policy was part of a mandate imposed by the governor that requires masks or proof of full vaccination at all indoor public spaces statewide.)

In New Rochelle, N.Y., the school district said early Tuesday that masks were no longer required. Later that day, it announced that masks were once more required indoors, adding “this guidance may change again quickly.”

In Iowa, it was a state law against school mask mandates that became a legal pingpong ball. Parents of disabled students had sued in federal court to block enforcement of the law, and a district court judge granted them an injunction. But a federal appeals court partly overturned the injunction early this week, sending the case back with instructions to limit the injunction’s effect to schools with disabled students. The Iowa attorney general said on Tuesday that the state would seek to appeal that ruling, too.

Uncertainty also reigns in Virginia. On Monday, an order took effect that made masks optional in schools. Gov. Glenn Youngkin, a Republican, issued the order on his first day in office, saying parents should be allowed to decide for themselves whether to send their children to school in masks. More than half of the state’s school districts are still requiring masks for all students inside schools, according to a Washington Post analysis, and seven, including the state’s largest, are suing him over the issue. The state’s Supreme Court could issue a ruling in the case within days.

Pennsylvania’s Supreme Court threw out a statewide school mask mandate last month, and some school districts there have ended their face mask requirements.

• Fed confirmation hearings: The Senate Banking Committee will hold a hearing for three nominees to be Federal Reserve officials: Sarah Bloom Raskin, who has been nominated to be the vice chair for supervision, and Lisa Cook and Philip Jefferson, who have been nominated to the Fed’s board of governors. Senator Patrick J. Toomey of Pennsylvania, the ranking Republican on the committee, has made clear that he has concerns with Ms. Raskin’s nomination and how she would approach financial regulation.

• Bank of England meeting: There are some expectations that central bankers will raise interest rates again, after a surprise rate increase in December. Officials will also update economic and inflation forecasts.

• European Central Bank meeting: Investors will be closely watching language around inflation as more members of the governing council have suggested it will be more persistent than has been forecast.

Friday

• Jobs report: A report on hiring in January will show the effect of the Omicron variant of the coronavirus at its peak. Economists expect the Labor Department to report that 150,000 positions were added during the month, down from 199,000 in December. The progress of the job market will be watched closely by investors as they try to parse how quickly the Federal Reserve, which is charged with maintaining full employment, might raise interest rates.

Eshe Nelson contributed reporting.