Macro Environment for SPY in 2022

$SPDR S&P 500 ETF(SPY.US)$ The Federal Reserve has been under pressure to raise the interest rate in response to rising inflation where the FED officials see as many as 3 rate hikes coming in 2022. Besides, the FED indicated that it will accelerate the tapering of monthly bond buying program in 2022. The FED plans to buy $60 billion worth of bonds each month starting in January 2022, down half the level from the previous amount it bought in November 2021, as reported by CNBC.

On top of that, the global money supply (M2) is expected to decelerate rapidly with acceleration of the reduction of the monthly bond purchasing.

The macro environment in 2022 such as the interest rate hike, acceleration on tapering of the bond buying program and shrinking of the global money supply are likely to pose a challenging environment to the S&P 500 ETF (SPY).

In fact, since FED’s announcement on tapering on bond purchases in November, lots of growth stocks have experienced big drawdowns of 30%-60% from their peak while less than 50% of stocks are above 200-Day average, which was a red flag as detailed in the post on the divergence between the stock market breadth and S&P 500.