Most of the time, most investors' focus should be on the long term That's not to say, however, that long-term investors should simply ignore any and all real-time developments. Important long-term changes can happen in an instant. You have to be ready and willing to respond, if merited.
With this in mind, here's a rundown of three major things looming in the short-term pipeline that are likely to shake things up for stocks in a bigger-picture way.
1. Value begins to overtake growth
Astute students of the market may already realize that while the past five years have been great ones for the broad market, they've only been great for -- and because of -- growth stocks. Specifically, since the beginning of 2017, growth stocks have outpaced the S&P 500 (^GSPC 0.11%) by gaining an incredible 173%, while value names have only hammered out a gain of 58% for the five-year stretch.
As the old saying goes though, nothing lasts forever. After years of lagging, it's time for value to shine.
In fact, we've already seen short glimmers of this leadership transition. Spurred by rising interest rates in anticipation of continued inflationary pressures, the iShares S&P 500 Value ETF (IVE 0.04%) is up firmly up for the year so far, while the iShares S&P 500 Growth ETF (IVW 0.28%) is decidedly down in just the first few days of 2022.
More of this divergence is apt to be in the cards, however, as more investors accept that we're moving into the latter stages of a bull market marked by rising rates and inflation. This environment tends to work against growth industries but is something of an advantage to value-oriented sectors like commodities and banking.
2. A smaller Build Back Better bill gets traction
President Biden's proposed $1.75 trillion Build Back Better Act stalled late last year, right before the U.S. Senate broke for the holidays, as Republicans ultimately couldn't support the sheer cost of the Democrat-written bill.
The idea of a massive spending bill is hardly dead in the water though. The bill will be much more palatable to Congress's conservative spending hawks if it's smaller in scope. Meanwhile, most Democratic lawmakers are increasingly realizing that even a more modest Build Back Better bill is a much-needed legislative victory and better than no bill at all.
It matters to investors primarily because the crux of any version of the Build Back Better Act will involve the actual building of new infrastructure. That's great news for construction equipment companies like Caterpillar, although the ripple effect of this spending could prove positive for several slivers of the economy.
Keep in mind that an outright passage of any slimmed-down Build Back Better bill isn't likely to materialize in January; legislators simply won't have time to update the proposed act and push it through the approval process. Wider support for the act is likely to take shape within the month though, which should be enough to instill new confidence in investors' minds. That's apt to buoy stocks as a result.
3. Retailers' problems with returns reach a boiling point
Finally, while it's been a growing challenge for years now -- in step with the growth of e-commerce -- retailers ranging from Target to Macy's to online-only shopping venue Wayfair may finally reach their breaking point with merchandise being returned to them for credit.
The numbers are simply staggering. U.S. consumers are expected to return at least a record-breaking $112 billion worth of holiday purchases within the month, before return windows expire. That's the estimate from B-Stock anyway, which helps retailers liquidate the 90% of returns that can't be put back on store shelves or sold as new online.
Another company called Optoro, which specializes in handling returned goods on behalf of retailers, says that 2021's merchandise returns will cost those online and offline stores 59% more than they did in 2020. For perspective, Optoro estimates the average $50 item will cost $33 to return. The return cost exceeds the maximum net profit made on the item when it was first sold in many cases.
It's become such a costly nuisance, in fact, that even well-established retailers like Target and Amazon (AMZN -0.66%) are simply telling their customers to keep their unwanted item even after receiving a refund. The small financial hit becomes less important than offering a hassle-free shopping experience in these cases.
Don't look for sweeping revisions to return policies in January; it will take retailers more time than that to think through their reverse logistics. Now (literally) running out of room to even temporarily store returned goods before being liquidated by the pallet, don't be surprised to see the industry finally come to tough terms with the flaws in its generous return terms.