2021 went out with glory: the S&P 500 finished with a total return of +28.7% while NASDAQ, powered by big tech stocks, climbed +21.4%, and the Dow ended at +18.7%. January of the new year has started a bit differently with the S&P 500 down over 9% and NASDAQ off close to 18% as of this writing.
Worries about inflation, the Fed’s tightening response, slowing earnings growth after last year’s explosive demand, supply chain constraints easing but still ongoing, and geopolitical concerns with Russian troops massed on the Ukrainian border have combined to deflate valuations in rapid order. But the overall economic picture remains healthy: unemployment continues to fall, now at 3.9%*, wages are rising, and consumers used the last 18 months of government support and their own reduced spending to shore up their personal balance sheets, reducing debt en masse. Consumer net worth increased by $28T from the end of 2019 to the end of 2021** (Services are 2/3’s of US GDP.)
Earnings this year, while below the peaks of last year, should still be strong, and earnings are what typically drive stock prices. Inflation, at highs not seen in forty years – up 7% YoY in December* — should moderate as supply chain capacity catches up and pent-up demand normalizes, though it may take until the second half of this year.
Worries about the Fed having to raise rates aggressively to reduce inflation will continue until proven otherwise – which means market volatility will likely continue — but Fed Chair Powell, who has been cautious and data-driven, has maintained that inflation will abate and that tightening will be gradual
but steady, and well-telegraphed in advance.
Historically, a Fed tightening cycle accompanied by accelerating growth has meant strong stock market returns and relatively low volatility. We believe this is a correction in a bull market, and not the start of a bear market, and can be used to put cash to work.
As for geopolitical risks, short of a very low odds World War III, any military action in Ukraine that causes a market swoon, is highly likely to be shallow, short-lived and a buying opportunity, just as it was when the US launched an invasion in Iraq in 1991.
At BD8 Capital Partners, we invest for the long-term in solid, well-managed companies with sustainable long-term growth prospects. We focus on your financial planning and investment needs and have an audited track record of client performance to back up our unwavering commitment to your financial health and well-being. If you would like to discuss your financial planning needs, the effectiveness of your portfolios and whether you are well positioned for what lies ahead, please feel free to contact us.
We hope this letter finds you healthy and safe.
With warmest regards,
BD8 Capital Partners LLC
*Bureau of Labor Statistics.
** Federal Reserve
The content of this article is for informational purposes only and should not be considered a recommendation of any particular security, strategy, investment product or investing advice of any kind. There are risks associated with investing, including the entire loss of principal invested. Past performance does not guarantee future results. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions of Spire Wealth Management, LLC, Spire Securities, LLC or its affiliates. Spire Wealth Management, LLC is a Federally Registered Investment Advisory Firm. Securities offered
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