Finance

A trader works on the floor of the New York Stock Exchange (NYSE) on December 13, 2021 in New York City.
Spencer Platt | Getty Images

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Hundreds of billions of dollars in cash have been amassed by big investors in the last few weeks of 2021, setting the stage for a massive risk-on move into equities in the new year.

Investors added more than $43 billion into money market funds last week, bringing the total amount of cash raised in the past seven weeks to a massive $226 billion, according data from Goldman Sachs. The money market stockpile has not declined in 2021 despite the rally in stocks, with assets under management in cash equivalents standing near a record $4.7 trillion, the data showed.
“My core thesis is that money will come out of negative real yielding cash and out of bonds aggressively and early in 2022 following December board room asset allocation meetings,” Scott Rubner, analyst at Goldman Sachs’ global markets division, said in a note.
“Every private wealth advisor in the world is conducting ‘year-end allocation review’ meetings right now. The feedback will be largely that investors hold too much cash with rising inflation,” Rubner said.
Investor’s cash allocation jumped 14 percentage points this month from November to a net 36% overweight, the highest cash exposure since May 2020, according to Bank of America’s monthly fund manager survey.
A lot of the move out of cash could happen in January when money managers make their initial bets of the year. January typically makes up for 134% of the yearly flows, according to Goldman, meaning the month typically sees a big inflow, while the rest of the year has a net outflow.

It also speaks to Wall Street’s old theory of “January effect,” which believes that there is a seasonal rally in stocks during the first month of the year.

Arrows pointing outwards

All this cash on the sidelines could be the dry powder that fuels the next leg up in risk assets if investors feel comfortable enough to take on risk. The S&P 500 has rallied over 25% this year as the market climbed a wall of worry from surging inflation to the ongoing pandemic to the rollback of monetary stimulus.
The market seemed to have moved past one of the big uncertainties heading into year-end as stocks jumped in a relief rally after the Federal Reserve signaled a more aggressive unwinding of its monthly bond buying. The central bank also signaled on Wednesday that its members see three hikes in 2022.
“We see another year of positive equity returns coupled with a down year for bonds,” BlackRock strategists said in their 2022 market outlook. “Central banks will start to raise rates but remain more tolerant of inflation. The powerful restart of economic activity will be delayed but not derailed due to new virus strains.” More

HERE IS A potted history of recent economic policy and inflation. In the 2010s central banks created vast amounts of money through their quantitative-easing (QE) schemes, while governments enacted fiscal austerity. Inflation in the rich world was mostly too low, undershooting central banks’ targets. Then the pandemic struck. There was plenty more QE. But the truly novel economic policy was the $10.8trn in fiscal stimulus implemented worldwide, equivalent to 10% of global GDP. The result was high inflation. The rich country that has splurged the most, America, has had the most inflation. With consumer prices rising at an annual pace of 6.8%, the Federal Reserve on December 15th was forced to acknowledge that inflation had become a big threat.At first glance, this apparent supremacy of fiscal policy is awkward for fans of Milton Friedman’s view that inflation is “always and everywhere a monetary phenomenon”. Central banks, not governments, are charged with hitting inflation targets. But does the experience of the pandemic show that inflation is really fiscal?One way in which fiscal stimulus boosts inflation is by strengthening households’ and firms’ balance-sheets, making them more likely to spend. Suppose the government raises cash from investors, who receive bonds in exchange. Then it hands out the money to households, returning it into circulation. Netting off, it is as if the government has just given out new bonds. Whether those bonds truly constitute new wealth for the private sector is the subject of an old theoretical debate. When the government runs up debts the public could also expect to pay higher taxes in the future—a liability that offsets their newly created assets. Yet in reality it is clear that fiscal stimulus leads to more spending.Now introduce a new step into the thought experiment. The central bank, implementing QE, creates new money with which it buys the bonds that the government has given out. So when you net everything off, the government is not giving out bonds. It is giving out cash. This is not far off the policy mix during the pandemic. The tsunami of fiscal stimulus was accompanied by bond-buying of almost equal magnitude: central banks in America, Britain, the euro zone and Japan have together bought more than $9trn in assets. The result has been a surge in deposits at commercial banks. In America they have risen from around $13.5trn in early 2020 to around $18trn today. As early as the spring of 2020 some monetarist economists, such as Tim Congdon of the University of Buckingham, pointed to surging measures of broad money, which includes bank deposits, and warned of inflation to follow.So far, so Friedmanite. But which leg of the policy matters more: the fiscal stimulus, which boosted aggregate household wealth, or QE, which ensured the infusion was of cash and not of bonds? There is probably something special about infusing households’ balance-sheets with cash, says Chris Marsh of Exante Data, a research firm. He has suggested that a “rediscovery” of monetarism could be in the offing after the pandemic.Other economists, however, argue that QE is mostly ineffective, except in periods of acute financial stress, such as the “dash for cash” in spring 2020. Suppose that once that crisis had passed central banks had shrunk their balance-sheets quickly, but had still promised to keep interest rates at zero for a long time. It seems likely that America’s enormous fiscal stimulus would, by boosting household wealth, still have driven up spending and prices.Yet believing in the impotence of QE compared with fiscal stimulus is in fact consistent with monetarism—if you expand the definition of money. Distinguishing the electronic money created by central banks from debt securities issued by governments is increasingly difficult. This is partly because when interest rates are close to zero, they are closer substitutes. It is also because most central banks now pay interest on the electronic money they create. Even if rates were to rise, so-called “interest on reserves” would still leave electronic money looking a bit like public debt.The reverse is also true. Investors value government debt, especially America’s, for its liquidity, meaning they are willing to hold it at a lower interest rate than other investments—much like the public is willing to accept a low yield on bank deposits. As a result “it seems more accurate to view the national debt less as a form of debt and more as a form of money in circulation,” wrote David Andolfatto of the Federal Reserve Bank of St Louis in December 2020. He also warned Americans to “prepare themselves for a temporary burst of inflation” in light of the one-off increase in national debt during the pandemic. If money and debt are substitutes, just swapping one for another, as QE does, might provide little stimulus, consistent with the experience of the 2010s. But expanding their combined supply can be powerfully inflationary.Right on the moneyThe logical extreme of this argument is known as the “fiscal theory of the price level”, created in the early 1990s (and in the process of being refreshed: John Cochrane of Stanford University has written a 637-page book on the subject). This says that the outstanding stock of government money and debt is a bit like the shares of a company. Its value—ie, how much it can buy—adjusts to reflect future fiscal policy. Should the government be insufficiently committed to running surpluses to repay its debts, the public will be like shareholders expecting a dilution. The result is inflation.Explaining today’s high inflation does not require you to go that far, though. It is enough to look at recent deficits, rather than to peer into the future. Yet it is striking that economists like Mr Andolfatto who focused on the supply of government liabilities foresaw today’s predicament while most central bankers, whose eyes were fixed firmly on labour markets as a gauge of inflationary pressure, did not. The past decade has shown that when interest rates fall to zero, it takes more than just QE to escape a low-inflation world. Still, Friedmanism lives on. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Of Milton and money” More

THE ONLY thing that proved transitory about inflation in America in 2021 was the consensus that it would subside. The left-hand chart shows that analysts consistently revised up their predictions, trailing reality. Consumer prices are now rising by nearly 7% compared with a year earlier, the fastest pace since 1982. What does the future hold? The right-hand chart presents two scenarios. In the first, month-on-month inflation immediately falls back to its pre-pandemic trajectory. Even so, it would take until the end of 2022 for annual inflation to slow to the 2% pace that used to be the norm. In the second case, consumer prices rise at the same monthly clip seen over the past year. Annual inflation would soar to nearly 8% in February, and stay elevated. Either way, one prediction seems rock-solid: the Federal Reserve will start raising interest rates in 2022, as the central bank itself indicated on December 15th.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “After a shocker in 2021, where might inflation go in 2022?” More

FOR WEEKS Russia has been massing troops and tanks near the Ukrainian border. Neither talks with nor threats from the West have stemmed the flow. With America and its allies loth to commit forces, another option is gaining prominence: cutting Russia off from SWIFT, the messaging network used by 11,000 banks in 200 countries to make cross-border payments. Flicking a switch seems safer than putting boots on the ground. But it could have dangerous consequences.A first hurdle would be getting SWIFT to comply. The co-operative of banks, based in Belgium, vows to be politically neutral. Many European countries, such as Germany, do a lot of business with Russia, and may oppose the plan. But there is a precedent. In 2018 America managed to force SWIFT to ditch Iranian banks even in the face of European resistance. America would probably have its way again. It could threaten to pull its own banks from SWIFT, or to seize infrastructure vital to the network, such as a data centre in Virginia. In 2020 it used similar threats to force SITA, a network of global airlines based in Switzerland, to disconnect carriers from countries facing American sanctions.But would excluding Russia from SWIFT actually be worthwhile? There are three reasons to think that it might not. It would harm but not cripple Russia; it would impose costs on the West; and it would be counterproductive in the long run.Start with the impact on Russia. The no-SWIFT scenario is not new to Moscow. It has been bracing itself since 2014, when America first raised the idea of unplugging it from the network to punish it for invading Crimea (cooler heads eventually prevailed). If Russia were excluded today, capital flight and a run on firms and banks reliant on foreign funding would ensue. But coping mechanisms would then kick in. Russian banks and their foreign partners would use other means of communication, such as telex, phone and email. Transactions would migrate en masse to SPFS, a Russian alternative to SWIFT that is not nearly as ubiquitous and sophisticated, but still usable. As the payments infrastructure struggled at first to cope, Russia would suffer some disruption—but not disaster. Over time, investment in SPFS would make the system speedier.Meanwhile, the West would suffer blowback. Until now America has aimed its financial firepower at small or isolated countries such as Cuba, Iran and Myanmar. Russia is twice the combined size of any economy America has ever embargoed. Any disruption in Russia would spill over to the countries that have business dealings with it. It is the EU’s fifth-largest trading partner, for instance. And European banks have $56bn-worth of claims on Russian residents. There would also be indirect damage through retaliation. Iran in 2018 had a weak hand. But Russia is the source of 35% of Europe’s gas supply and is home to €310bn ($350bn) of EU assets.In the long run America, too, would bear costs. It holds sway over international finance thanks to the dollar’s dominance and its pre-eminent role in global settlement systems. Any country with uneasy relations with America would seek alternatives to SWIFT, while Europe might redouble its efforts to develop a more independent payments network. Weaponising SWIFT against Russia would be seen by China as a “dress rehearsal”, says Adam Smith, a former American sanctions official now at Gibson Dunn, a law firm. It would provide China with the impetus to bolster CIPS, its rival to SWIFT, just as America’s other foes look for alternatives. The network, which already counts some big foreign banks as members, allows messages to be transmitted in both Chinese and English. Its daily average volume of transactions of 310bn yuan ($50bn) remains well behind SWIFT’s estimated $400bn, but it has nearly doubled in the past year. Should it reach scale, America’s financial dominance would be threatened.Other weapons of economic disruption exist. America could, for example, blacklist big Russian financial institutions, preventing its own banks from dealing with them. That would probably be as disruptive for Russia as a disconnection from SWIFT, without undermining the global financial architecture as much. Yet the risk of immediate blowback would remain. That highlights a long-standing dilemma of wielding economic sanctions: although they are cheap when aimed at puny states, bigger targets can hit back, says Tom Keatinge of the Royal United Services Institute, a think-tank. The West still has powder left. But it must choose its battles wisely. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “SWIFT thinking” More

Check out the companies making headlines before the bell:
Delta Air Lines (DAL) – Delta rose 2.3% in the premarket after projecting a $200 million fourth-quarter profit. Consensus forecasts were predicting a quarterly loss for Delta, but the carrier said it is seeing strong holiday demand and it is on the path toward exceeding pre-pandemic profit levels.

Accenture (ACN) – The consulting firm’s shares surged 6.7% in the premarket after it reported better-than-expected profit and revenue for its latest quarter, and raised its earnings guidance for fiscal 2022. Revenue rose by more than 20% across the four biggest industry groups in Accenture’s customer base.
Regeneron Pharmaceuticals (REGN) – The drugmaker’s shares declined 1% in premarket trading after it said its antibody cocktail loses potency against the omicron Covid-19 variant. Regeneron did say that the cocktail is effective against the delta variant.
Lennar (LEN) – Lennar reported quarterly earnings of $3.91 per share, below the $4.15 consensus estimate, and the homebuilder’s revenue also fell short of forecasts. Lennar was hurt by higher lumber costs as well as increased labor costs and shortages of raw materials, resulting in delayed home deliveries. Lennar tumbled 6.3% in premarket action.
Novartis (NVS) – Novartis launched a new share buyback program worth up to $15 billion, with the drug maker planning to complete those repurchases by the end of 2023. Shares jumped 4% in premarket trading.
Visa (V) – Visa rose 1.1% in the premarket after announcing that it added $12 billion to its share buyback program, bringing the total amount of its repurchase authority to $13.2 billion.

J.M. Smucker (SJM) – Smucker struck a deal to sell its natural beverage and grains businesses to private equity firm Nexus Capital Management for $110 million, with the food producer saying it wanted to focus more resources on its core brands.
Intuitive Surgical (ISRG) – Intuitive Surgical was added to the “conviction buy” list at Goldman Sachs, which points to the company’s pending launch of a new surgical system. Shares added 1.2% in the premarket.
AT&T (T) – Morgan Stanley upgraded AT&T to “overweight” from “equal-weight,” saying a recent slide by the stock creates an attractive risk-reward profile. The firm said there are several other key factors driving the upgrade, including the pending completion of the WarnerMedia/Discovery merger. AT&T gained 1.5% in premarket trading.
Petco Health (WOOF) – The pet products seller’s stock added 1.9% in the premarket after Needham began coverage with a “buy” rating. The firm feels Petco should outperform competitors in the pet category, given its presence in multiple channels including veterinary hospitals.
Shopify (SHOP) – The e-commerce platform operator rallied 2.9% in premarket trading after Evercore upgraded it to “outperform” from “in line.” Evercore noted that the stock is about 20% below its year highs and that the company represents a high-quality asset in terms of growth opportunities.

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The International Monetary Fund on Tuesday had urged British policymakers to avoid “inaction bias” ahead of the vote.
U.K. inflation hit a 10-year high in November as the Consumer Price Index rose by an annual 5.1%, up from 4.2% in October and well above the central bank’s target of 2%.
Meanwhile, the labor market recovery has remained robust, with 257,000 staff added to payrolls in November, even after the end of the country’s furlough scheme.

View of the Royal Exchange and Bank of England in London.
Vuk Valcic | SOPA Images | LightRocket | Getty Images

LONDON — The Bank of England on Thursday hiked interest rates for the first time since the onset of the pandemic, increasing its main interest rate to 0.25% from its historic low of 0.1% as inflation pressures mount.
U.K. inflation hit a 10-year high in November as the Consumer Price Index rose by an annual 5.1%, up from 4.2% in October and well above the central bank’s target of 2%. The Bank now expects inflation to remain at around 5% through the majority of the winter period, peaking at around 6% in April 2022%.

Meanwhile, the labor market recovery has remained robust, with 257,000 staff added to payrolls in November, even after the end of the country’s furlough scheme.
After the Bank surprised markets by avoiding a rate hike in November, many analysts had suggested that the subsequent data showed the economic conditions were in place to start tightening.
However, most economists polled by Reuters expected the Bank Rate to be held at 0.1% going into Thursday’s meeting, in light of the emergence of the omicron variant and its rapid spread in the U.K.
At its November meeting, the MPC suggested that if incoming data, particularly on the labor market, were broadly in line with its central projection, a hike would be needed to return inflation toward its 2% target.
“Recent economic developments suggest that these conditions have been met,” the Bank said in its report Thursday.

“The labour market is tight and has continued to tighten, and there are some signs of greater persistence in domestic cost and price pressures.”
The Bank’s nine-member Monetary Policy Committee voted 8-1 in favor of the 15 basis point hike, while voting unanimously to maintain the government bond-buying program at its target stock of £875 billion ($1.16 trillion), along with £20 billion of corporate bonds.
The International Monetary Fund on Tuesday had urged British policymakers to avoid “inaction bias” ahead of the vote.
The BOE also revised down its expectations for U.K. GDP at the end of the fourth quarter of 2021 by around 0.5% since the November report, leaving the economy around 1.5% off its pre-Covid level.
“The impact of the Omicron variant, associated additional measures introduced by the UK Government and Devolved Administrations, and voluntary social distancing will push down on GDP in December and in 2022 Q1,” the Bank said in its report.
“The experience since March 2020 suggests that successive waves of Covid appear to have had less impact on GDP, although there is uncertainty around the extent to which that will prove to be the case on this occasion.”

A ‘catch-22′ and a Christmas surprise

Hussain Mehdi, macro and investment strategist at HSBC Asset Management, said the 8-1 vote to hike rates was “fairly surprising” given the emergence of omicron and uncertainty over its near-term growth impact.
“Nevertheless, there were solid reasons for immediate action. The labour market is tight, and Omicron has the potential to exacerbate supply-side constraints in goods and labour,” Mehdi said, indicating further inflationary pressures.
“Ongoing upside inflation risks are likely to push the MPC into further action in 2022.”
Purchasing Managers’ Index (PMI) readings on Thursday showed that growth in U.K. economic activity pulled back sharply in December as the omicron variant hit businesses.
However, Hinesh Patel, portfolio manager at Quilter Investors, said the Bank clearly feels “vindicated” in hiking rates just before Christmas despite the steep incline in Covid cases.
“Given high, and rising, inflation, in part a result of the Bank’s communication missteps creating a de-facto weaker sterling policy, it clearly felt it could no longer stay on the accelerator pedal despite the risks that are now out there in the economy,” Patel said.
Matteo Cominetta, economist at Barings Investment Institute, said the Bank was caught in a “perfect catch-22 situation, where it will be criticised for hurting an uncertain recovery if it hikes rates and for letting inflation run loose if it does not hike.”
Cominetta suggested that in hiking now, the Bank of England “chose the hardest path.”

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East Tech West

BNPL services are a new form of payment where consumers make purchases and pay them off over a period of time in several instalments, often interest-free. While BNPL is typically interest-free, some providers charge high late payment fees.
There’s been a surge of interest in BNPL services in China over the last decade, Kapil Tuli, marketing professor at the Singapore Management University’s (SMU) Lee Kong Chian School of Business told CNBC.

Woman doing online shopping.
Oscar Wong | Moment | Getty Images

China’s buy now pay later market is set to grow — but the industry is still at a nascent stage, and challenges lie ahead, experts told CNBC.
There’s been a surge of interest in BNPL services in China over the last decade, said Kapil Tuli, marketing professor at the Singapore Management University’s (SMU) Lee Kong Chian School of Business.

Buy now pay later services are a form of payment where consumers make purchases and pay them off over a period of time in several instalments, often interest-free. While BNPL is typically interest-free, some providers charge high late payment fees.
A few factors are fueling the “perfect storm” for the growing trend, according to Tuli. They include unprecedented low interest rates, the rise of online payment through “super apps” like Alipay and WeChat and extremely well-funded fintech start-ups eager to acquire new customers.
In addition, China’s cashless society, huge e-commerce market and mobile and online shopping have become a ubiquitous to life in China, said Boh Wai Fong, deputy dean of Nanyang Business School at Nanyang Technological University in Singapore.
The Chinese BNPL sector emerged as one of the fastest growing markets in Asia-Pacific region, according to a survey by research and consulting firm PayNXT360.
According to the Q2 2021 BNPL Survey, BNPL payment in the country is expected to grow by 51.3% on an annual basis, and could reach $82.78 billion in 2021.

Rising consumerism

The rise of online shopping and “seamless integration” of BNPL payments with e-commerce platforms has encouraged more purchase decisions to be made, said Boh.
In 2020, about 74% of Chinese people used mobile payments every day because of its ease and convenience, according to a survey by the Payment and Clearing Association of China.
Tech-savvy Chinese millennials are also jumping on the bandwagon to satisfy their hunger for the latest gadgets and luxury goods, research shows.
Those between the ages of 18 and 29 constitute 36% of the borrowers of consumer finance, excluding housing loans, according to a study by the Academic Center for China’s Economic Practice and Thinking at Tsinghua University.

But critics have warned that the trend can fuel overspending habits. A consumer advocacy group in the U.K. conducted a study and found that almost a quarter of BNPL users spent more than they had planned to, because the service was available.
With Covid-19 impacting household incomes, Chinese households and consumers may turn to BNPL as an option to “smooth out” their expenses over the long term for big-ticket items, said Boh.  
The growth in BNPL is “inevitable,” according to the professor, who pointed out that unlike other markets, the e-commerce and mobile payments industries in China are already “very stable” and are dominated by several big players like Alibaba and Tencent. That means there may be limited opportunities for new players like international companies to break into the Chinese market, she said.
Popular players in China included Ant Group’s micro lending business, Ant Check Later. Also known as Huabei, it enables Alipay users to make online and offline purchases without credit cards, with options to repay them through instalments.

Icons of buy now pay later (BNPL) apps applications are arranged, clockwise from top left, Pace, Rely, Octifi, Atome, Grab and Hoolah, on an iPhone in Singapore, on Sunday, June 6, 2021.
Wei Leng Tay | Bloomberg | Getty Images

New player sets sights on China

One BNPL player that’s set its sights on China is Atome, a fast-growing Singapore-headquartered start-up.
The financial tech company operates in nine markets, including Singapore, Indonesia, Vietnam, Philippines and mainland China. It has over 20 million registered customers in Asia, as part of its parent company Advance Intelligence Group.
While it targets young professionals in their early 20s to late 30s, the company is also seeing a pick-up in older segments, such as those above 40 years old, who value the “convenience, transparency and flexibility” that BNPL brings, Tongtong Li, general manager of Atome China told CNBC in an email.

BNPL is still at a relatively nascent stage in mainland China but we’re expecting a strong medium- to long-term growth for the industry.

Tongtong Lee
general manager, Atome China

Since launching in mainland China in September 2020, the business has “rapidly expanded” to cover tier 1 megacities and smaller tier 2 cities in regions like Chongqing, Chengdu and Luzhou, said Li.
It has also grown to include a merchant network of 1,500 local and international brands like Nike, New Balance, and Tissot. Consumers spend around 1,000 Chinese yuan to 1,500 Chinese yuan (about $157 to $235) per transaction in beauty, fashion make up and skincare products, according to Li. She added that they are also seeing growing momentum for the luxury fashion category.
Major banks are also throwing their weight behind BNPL firms.
Atome Financial, the business line that operates Atome and its digital lending platform, inked a 10-year partnership with Standard Charted. The partnership includes $500 million in financing and collaboration of co-branded products in multiple markets in Asia.
“BNPL is still at a relatively nascent stage in mainland China but we’re expecting a strong medium- to long-term growth for the industry,” said Li.
She said Atome will continue to expand to more tier 1 and tier 2 cities given the “huge potential” it holds, adding that the company can take advantage of its regional market presence to drive more cross border transactions between Southeast Asia and mainland China.

China clamps down

Since the end of last year, Chinese regulators have widened their regulatory crackdown on China’s so-called “platform economy,” which covers a range of e-commerce sectors from online shopping to food delivery and fintech.
The practice of buy now pay later “encourages spending, sometimes triggering what is thought as excessive spending,” said Ruan Tianyue, assistant professor in the Department of Finance at the National University of Singapore Business School.
Like other forms of consumer credit, a fraction of BNPL balances may have to be declared as non-performing loans when the borrower defaults or is late in making a payment. “Too high a level of non-performing credit can threaten economic and financial stability,” she said.

NTU’s Boh pointed out that as BNPL schemes are still “relatively new” in China. The regulatory framework and industry guidelines are not yet mature, and hence, it is important to develop the system, she added.
Tuli from SMU agreed, and said that while BNPL has become a popular and viable option for Chinese consumers who find it hard to access credit cards, the sector is likely to see a more “measured, understated” market growth in the near future.
“In the last six months, the mad rush for growth in China has now been calmed down. The Chinese regulators are very sensitive [about] anything likely to create systemic risks to the financial systems,” said Tuli.”Going ahead, companies need to be careful in how they entice consumers… I don’t expect to see a wild wild west growth which we saw earlier,” he said, referring to how the BNPL sector was seeing promising growth before the tech crackdown.
— Correction: This article has been updated to accurately reflect that Huabei is still in operation. More

Federal Reserve Chairman Jerome Powell is seen delivering remarks on screens as a trader works on the trading floor at the New York Stock Exchange (NYSE) in New York City, December 15, 2021.
Andrew Kelly | Reuters

U.S. stock futures were slightly higher Wednesday evening after the Federal Reserve signaled it would be aggressive on tapering and sees three interest rate hikes in 2022.
Futures on the Dow Jones Industrial Average gained 0.1%. S&P 500 and Nasdaq 100 futures added 0.1% and 0.2%, respectively.

Stocks traded in negative territory throughout the regular session Wednesday and turned higher ahead of Fed chair Jerome Powell’s press conference in the afternoon at the conclusion of the two-day Federal Open Market Committee meeting. The Dow added 383 points, or 1.08%. The S&P 500 rose 1.63% and the tech-heavy Nasdaq Composite jumped 2.15%.
“It appears that the Fed had successfully communicated this news ahead of time and although the stock market moved higher during the press-conference, the sectors leading the market higher (like utilities and healthcare) are both very defensive sectors and indicate some concern about the future path of the economy,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
Health-care stocks UnitedHealth and Amgen gained ground Wednesday, rising 3.1% and 2.6%, respectively.
The Fed will begin reducing the pace of its asset purchases in January and buy just $60 billion of bonds each month going forward, compared to $90 billion in the month of December. That decision follows recent inflation data showing a 6.8% surge in November, which is higher than expected and the fastest rate since 1982.
“The notion that elevated inflation levels would be transitory has finally been thrown out the window by the Fed and the latest policy adjustments are reflective of a committee that doesn’t want to miss the next train leaving the station,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.

More economic data is due out Thursday, including housing starts and jobless claims at 8:30 a.m. EST.
Adobe and Accenture are scheduled to report quarterly earnings before the opening bell. FedEx and Rivian will report after the bell.

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