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By Christmas Eve in 2018, the U.S. equity market was set for its worst December since 1931, having dropped 16 per cent. Monetary policy was among the main culprits, as new-ish Federal Reserve chairman Jerome Powell had signaled that the unwinding of quantitative easing was ‘on autopilot’ during the month.

Just before year end, however, Mr. Powell reversed course, announcing that the central bank had heeded market volatility and would be flexible with monetary tightening. The S&P 500 would subsequently jump 25 per cent in the first four months of 2019.

This series of events is perhaps the clearest evidence of the market’s dependence on easy money.

Mohamed El-Erian, former co-head of asset management giant PIMCO (along with Bill Gross), recently explained that current market volatility was a related phenomenon, writing: “For a long time, markets were powered through unchartered and choppy waters by the strong force of central bank liquidity injection. Now the force is losing power [because of the Fed slowing of Quantitative Easing] and the waters are choppier [due to Omicron, China, less fiscal support, etc].”

As 2022 begins, central banks have less freedom to save the day for investors, thanks to inflation. Earlier this month, BofA Securities asset allocation analyst Abhinandan Deb wrote that the “Fed put” – a degree of decline in asset markets that would push the central bank to stabilize prices by easing monetary policy – was being pushed lower by inflation pressure. In other words, the Federal Reserve wouldn’t be able to halt a decline in equities with loosening financial conditions because it would exacerbate inflation pressure.

Mr. Deb went on to warn investors that the current market backdrop “increases the chances of a rude wake-up call when [buy the dip investment strategies] stumbles, causing the market to look to the Fed for help that may not come easily.”

This all sounds dire, but it’s only one piece on the puzzle. There are positive forces for equities – the global economic recovery and the easing of supply chain pressures are expected even if delayed by Omicron – that should offset the negative effects of monetary tightening and inflation.

Investors should, however, expected volatility in early 2022, and if markets get really weird, they should not expect immediate help from central banks.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

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The Rundown

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You could say Vanguard is what you get when a bunch of smart, conscientious investing people run an ETF and mutual fund company based on proven principles and not market trends and investors whims. Rob Carricks looks at the company 10 years after arriving in Canada.

Global Markets in 2021: Recoveries, reflation and wrecking balls

For global financial markets, the second year of the COVID pandemic has been nearly as dramatic as the first. The stocks bulls have stayed firmly in charge, surging energy and food prices have turbo-charged inflation, rattling the bond markets, while China has seen $1 trillion wipeouts in its heavyweight tech and property sectors. Reuters’ Marc Jones and Saqib Iqbal Ahmed review the turbulence.

Commodities to veer between China hopes, pandemic fears in 2022

If 2021 was a year of volatility and uneven performances for commodities, then 2022 is shaping up as a rinse and repeat as uncertainty over the recovery from the coronavirus pandemic remains the dominant theme. Clyde Russell of Reuters reports.

After another torrid year, can emerging markets rediscover their mojo?

The specter of higher interest rates in the United States, slowing growth in China and a strong dollar have this year hammered emerging markets already reeling from the fallout of the coronavirus pandemic. Even money managers whose job it is to convince clients to buy emerging assets admit 2022 doesn’t look much easier, according to Reuters.

Others (for subscribers)

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Tuesday’s analyst upgrades and downgrades

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Globe Advisor

Globe Advisor’s Best of 2021: How these trends are reshaping the investment industry

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Ask Globe Investor

Question: My spouse has a lot of unused TFSA room but doesn’t make enough money for contributions. Can I contribute to my spouse’s TFSA so that we maximize our tax savings?

Answer: Technically, you can’t contribute money directly to your spouse’s TFSA; only the account holder can make a TFSA contribution. However, it’s perfectly fine to give your spouse cash to deposit into his or her TFSA. That way, as a couple you can double your annual TFSA contributions. Keep in mind that the contribution and any income it generates will belong to your spouse.

--John Heinzl (E-mail your questions to jheinzl@globeandmail.com.)

What’s up in the days ahead

Stelco is no longer the only choice when it comes to investing in the steel production sector in Canada. Algoma is back trading in Toronto. Brenda Bouw takes a look at the investment case.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Globe Investor Staff