Thoughts At Year's End

I promised you an update on the markets prior to the end of the year..  Today I will briefly do that.  While the major market indices have held up relatively well in the past few months, the same cannot be said for many individual names or certain sectors of the markets.   Prior to yesterday half of all stocks had declined by 20% or more in the past 60 days or so.  Of course, we don’t generally invest in individual equities, but these underlying securities will have an impact on certain ETF investments that we make on your behalf.  Markets are poised to finish the year with excellent overall returns, but the past month or so has been very volatile.

 

We can blame the volatility on the following:  inflation data continues to be worrisome; supply chains are still clogged and the Federal Reserve has indicated a willingness to tighten monetary policy in 2022.   I think these are concerns but will likely not be as large a hurdle for the market to advance next year as perhaps some currently fear.  I believe inflation will rise but become more manageable as the year progresses and supply bottlenecks loosen.  I think we’ll start to see improvement in the supply chain as early as the summer now that the end of the year holiday rush starts to fade.  Finally, the Federal Reserve has indicated they will likely raise interest rates next year and continue to tighten monetary policy.  However, by any historical measure interest rates will still be at near record lows, assuming the Fed remains true to its word.  A year is a long time.

 

So let’s finally address the virus-the thing everybody fears.  Stocks really started to take it on the chin as the omicron variant of covid became the dominate variant on earth.  According to the information I’ve read on this, omicron is at least as highly contagious as measles and has ripped through the world at a much faster rate than any of the previous known varieties.  I should know because I’ve come down with it.  Not sure how I acquired Covid but I became infected somewhere early in December and have been managing my symptoms ever since.  Fortunately, beyond one slightly uncomfortable night early on I’ve felt like I had a moderate to severe head cold.  Sometimes I have a cough, other times no.   So far I haven’t lost my sense of taste or smell.  You have interesting dreams under covid, but beyond these things I feel fine.  Haven't missed any time at work and carried on as much as normal or at least as much as one can when under quarantine.  Most of the people I know that have it right now {and I know many now who are positive} report symptoms similar to mine.  I am triple vaxxed.  That’s surely helped as the data on hospitalization and severe illness so far indicates the severe cases we’re seeing of this are mostly in the unvaccinated population.

 

Here’s what we’re not seeing though.  We’re not seeing large scale calls to lockdown here in this country.  Proof of vaccine mandates yes.  Also an increased plea for people to get vaccinated has already started.  Some events are being cancelled or postponed but life so far seems to be carrying on.  Attitudes seem to be shifting regarding this in terms of what people are willing to put up with and how they’re willing to adapt.  Couple that with the seemingly milder symptoms with omicron and you have the recipe for an economy that has the potential to continue 2021’s the growth trajectory next year.  That means the scenario I laid out for you back in March, about how our current situation is very similar to what happened at the end of World War II when the war suddenly ended, is still very much intact.  You can refresh your memory on what I said then by clicking on the link above.

 

I said in November that I believe the equity market has the potential to appreciate 6-10% next year and I have seen nothing out there right now that is making me change my mind about that analysis.  I think stocks will be more volatile next year and probability suggests we’ll likely see at least one significant correction during the year.  However, that should not take away from the potential for us to see solid gains by the time the clock rolls around to this time at the end of 2022.  I’ll let you know if we change our assessment of that and I’ll be back with some further thoughts when we send out your end of year report in January.  

 

We have now completed two of the most trying years I think most folks can ever remember in their lifetimes.  But here we are, if not completely at the finish line of this thing, then a lot closer than a year ago when the vaccines were just barely starting to be distributed and there were virtually no treatments for the virus.  Now we have both vaccines and medicines to treat you when you’re ill.  Nobody is more aware of this right now than me.  It is not perfect and there is still too much death and suffering, but we are a long way from where we stood a year ago and light years from when we stared into the abyss of this thing in the winter of 2020.  Nobody could have predicted we’d have advanced as much as we have back then and many were calling for the end of the world.  I will end this with something I said back in April regarding all those doomsayers,  “Someday the world will end, but it only gets to do so once.  The time between now and the end, whenever that is, will likely be filled with those opportunities for profit.  Let’s go find them together!”

 

In the meantime it is my fervent hope that all of you have the happiest of holiday seasons and for those of you that celebrate it, Merry Christmas and God bless.

Chris.

What's Bothering Investors Right Now?

 Ok so here's all the issues bothering investors right now.

1.  First stocks have been correcting under the surface for months.  It's the mega cap names that have been holding up the indices.

2.  Continued worrisome inflation data.

3.  Fears of what the Federal Reserve will say tomorrow about raising interest rates next year.

4.  Supply chain issues leading to more inflation.

5.  A renewed fear that the omicron variant will derail the economy.

6.  End of year tax loss selling.

All of these events have led more to a buyers strike than out and out selling by most investors.  Any  of these reasons, or just a few of them, might have been enough to bring back volatility to stocks.

I'm still going with what I laid out here and to clients back in early November in my article, "It's Different This Time".  

I'm a bit under the weather these days so I don't know when I might post again.  Hopefully at least one more time before the end of the year.

Still Listed At Sea

 

USS Arizona {BB-39} departed Naval Station Pearl Harbor 0806 hours Hawaii time December 7, 1941. Sill listed at sea by the United States Navy.