Where to Invest in 2022 and Why the Fed Will Turn Dovish: Strategist - Business Insider

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At the end of November, after months of insisting that inflation would be “transitory,” Federal Reserve Chair Jerome Powell said it was time to “retire” the word.
The central bank had faced mounting pressure as the Consumer Price Index, an important inflation gauge, jumped to a 30-year high of 6.2%. President Joe Biden, who had reappointed Powell for another four-year term just days before Powell’s testimony, was also confronting rising prices for gas and consumer products.
Testifying before Congress, Powell indicated that the tapering of the Fed’s asset purchases could be sped up to a decrease of $30 billion a month as opposed to $15 billion. Some investors also took this to indicate the Federal Open Market Committee would then hike interest rates sooner than initially planned, which would slow down the economy and inflation.
But according to Marko Papic, the chief strategist at Clocktower Group, which manages $1.5 billion in assets, the Fed probably had it right the first time: Inflation will likely prove “transitory,” and fears about it are overblown. Papic said he thought 5% inflation would be seen the same as 2% had been in recent years.
“Investors are overstating how much ‘misery’ inflation is bringing to the median voter,” Papic said in a recent note. “Homeowners have seen their real estate assets appreciate, savers have seen equities and crypto appreciate, and wages are rising. If American consumers were so depressed and worried about prices, why are they quitting in droves?”
The Fed’s backtracking to a more hawkish stance is going to have consequences, Papic said. He said investors should prepare for stocks to suffer a “deep correction” this month as interest rates start to rise. 
He added that tightening monetary policy soon would be a greater risk of a recession , which he said was a bigger threat than inflation.
Papic said he believed the Fed would again reverse course and become very dovish once again so as not to trigger a downturn. He said he thought this second reversal would take place early next year or perhaps before the end of this year.
Papic also said he saw the Fed turning dovish again because Biden had three Federal Open Market Committee appointments to make in the months ahead.
Papic said after the dovish shift from the Fed in the weeks or months ahead, and with China likely to start easing policy, global bond yields would rise. 
This higher-rate environment would help commodities, he said, like oil and copper.
“If commodities managed to outperform in a year defined by a USD bull market , they will be absolutely set alight in 2022,” Papic said.
Investors can find diversified exposure to this sector through exchange-traded funds like the Invesco DB Commodity Index Tracking Fund (DBC).
Papic also said Chinese stocks would do well in an easing environment.
“The greatest macro development of November is neither the new COVID-19 variant nor Powell retiring the term ‘transitory,'” he said. “Rather, it is the policy inflection in Beijing, which should put a floor on Chinese and global growth in Q1.”
The SPDR S&P China ETF (GXC) offers exposure to Chinese stocks.
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