The Federal Reserve made one thing abundantly clear at the end of its December meeting: the U.S. economy is moving toward tighter monetary policy amid upside inflation risks and improving labor market conditions. At this gathering, the FOMC[1] doubled the pace of its taper to $30 billion per month, a move that will allow the asset purchases program to conclude in March, three months earlier than originally planned. At the event, policymakers also signaled that they could raise the federal funds rate three times in 2022 to counter elevated price pressures, a much more aggressive normalization schedule than envisioned in September, when the median dot-plot expectation only pointed to a half hike.
Although stocks initially gained despite the Fed's hawkish pivot, it is unlikely that broad-based bullish sentiment will prevail in the early stages of 2022, a situation that may pave the way for pockets of weakness in the equity market. This may be a good moment to entertain some trading strategies that capitalize on a potential pullback in risk assets.
First, I want to start by saying that I am not calling for a widespread sell-off. While the transition to a higher rates regime is clearly a headwind, stocks are not created equal. Based on this premise, it can be argued that some companies will feel the pinch of less accommodation more than others.
In my opinion, technology, but more importantly, growth stocks with exorbitant multiples and unprofitable businesses will stand to lose the most from the shift to an environment with less stimulus. Conversely, value-oriented companies with strong balance sheets and expanding margins may be the least affected.
With the speculative corner of the market in peril, I believe that the ARK Innovation ETF (ARKK) is in a very precarious place and, as a
