A trader works on the floor of the New York Stock Exchange (NYSE) December 9, 2021.

Brendan McDermid | Reuters

It’s back to business in the week ahead with a busy economic calendar to start the new year, including the always important monthly jobs report.

After a stellar 2021, stocks head into the 2022 with a tailwind, but the course of the market in the new year will depend more on solid earnings growth and a strong economy than a super easy Federal Reserve.

The S&P 500 rose 27% to 4,766 in a banner year, notching 70 record closing highs. The benchmark outpaced the 19% gain in the Dow Jones Industrial Average and the 21% rise in the Nasdaq Composite.

With Monday’s opening bell, the clock starts ticking on a quarter that could see the first Fed rate hike since 2018. In the bond market, worries about the latest omicron Covid-19 variant could give way to an investment community more intent on a reset of expectations for where interest rates are heading over the course of 2022.

The employment report is the most important data on a calendar that also includes the ISM manufacturing survey data and auto sales, both slated for Tuesday. International trade data is released Thursday.

According to Dow Jones, economists expect 405,000 jobs were added in the final month of 2021, up from 210,000 in November. The unemployment rate is expected to slide to 4.1% from 4.2%.

“It’s the start of a new year. History would tell you we should kick it off in a pretty strong way, especially considering we’ve seen this kind of rolling correction,” said Sameer Samana, senior global equities strategist at Wells Fargo Investment Institute. “We appreciate the fact the S&P has been making new highs, but when you look at the average stock or small cap stocks, they’ve had a very different experience.”

The 2021 market was bifurcated with an initial surge in some high flying growth stocks, but then many of those names fell hard, and some of the big-cap names in the S&P 500 turned in super-charged performances.

Microsoft was up 51% for the year, while Apple gained 34%. Home Depot was up 56%, and American Express gained 35%. Ford was up 136%.

The ARK Innovation ETF, a high flying collection of growth stocks in 2020, was down 24% for the year.

Fed ahead

On Wednesday, the Fed will release minutes from its December meeting. Following that meeting, the central bank announced it would speed up the tapering of its once $120 billion a month bond buying program — now ending it by March instead of June. The March meeting is now viewed as the first opportunity for the Fed to move on a rate hike. The Fed has forecast three for 2022.

“I think next week people start to shift to this changing monetary landscape. It’s such a big deal,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “The liquidity flows over the past two years has been nothing we’ve ever seen before.”

Strategists expect 2022 to be choppier for the stock market, as the Fed ends its bond purchases and moves to raise interest rates from zero. Stock strategists have a median target of 5,050 for the S&P 500, according to CNBC’s Strategist Survey.

Boockvar said the impact of tightening policy will be felt globally, as other central banks also reduce their asset purchase programs and move toward raising interest rates.

“That liquidity flow is slowing down, and we know how much of a help it’s been,” Boockvar said. “You can’t separate a Fed tightening cycle from the stock market. You can’t separate the market. They’re all connected. There’s no such thing that you can avoid the tightening of financial conditions.”

Wells’ Samana said he is focused on quality in big-cap U.S. stocks for the new year. “You’ve got to take what the market gives you and what it’s giving you now is there’s not a lot of reasons to step away from U.S. large cap,” he said. “We like tech, we like communications services. We like financials, and we like industrials. Two growth sectors and two cyclical sectors. We’ve been boiling it down to anything but defensives.”

Samana said Wells strategists downgraded the materials and energy sectors. At the same time, they upgraded tech. “We want to have a much more balanced position going into 2022, we just don’t know what opportunities will present themselves.”

Energy was the top performer of the major sectors in 2021, up 48%, its best increase ever. It was followed by real estate, which jumped 42%. Technology was up 33%, and financials also gained 33%.

Matt Maley of Miller Tabak pointed out the Consumer Staples Select Sector SPDR Fund has outperformed tech and semiconductors in December. The fund was up nearly 10%, while the Technology Select Sector SPDR Fund gained 3% for the month.

“In other words, that action in the stock market over the past several weeks has been a lot different than it has seemed to a lot of people.  We have not seen a melt-up … and the tech stocks have not done as well as most people think,” Maley wrote in a note. “More importantly, one of the most defensive groups in the marketplace has been the one that has been rallying nicely.  In our opinion, this tells us that investors are quite worried about the effect that the Fed’s new (more aggressive) tightening cycle could have on the stock market next year.”

What else to watch

The actions of OPEC+ have been an important factor driving oil prices and oil stocks this past year. West Texas Intermediate futures were up about 55% in 2021.

OPEC+ meets Tuesday and is expected to continue its policy of slowly returning oil to the market.

Week ahead calendar

Monday

9:45 a.m. Manufacturing PMI

10:00 a.m. Construction spending

Tuesday

Earnings: MillerKnoll

Vehicle sales

10:30 a.m. ISM manufacturing

10:00 a.m. JOLTS

Wednesday

8:15 a.m. ADP employment

9:45 a.m. Services PMI

2:00 p.m. FOMC minutes

Thursday

Earnings: Bed Bath and Beyond, Constellation Brands, Conagra, Walgreen Boots Alliance, PriceSmart, WD-40, Lamb Weston

8:30 a.m. Initial claims

8:30 a.m. International trade

10:00 a.m. ISM services

10:00 a.m. Factory orders

1:15 P.M. St. Louis Fed President James Bullard

Friday

8:30 a.m. Employment report

10:00 a.m. San Francisco Fed President Mary Daly

12:15 p.m. Atlanta Fed President Raphael Bostic

12:30 p.m. Richmond Fed President Tom Barkin

3:00 p.m. Consumer credit

Saturday

12:15 p.m. Atlanta Fed’s Bostic

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