Broker Check

January Market Insights

Happy New Year! I hope all is well and that you enjoyed a safe and joy filled holiday season!

The factors outlined in our recent economic commentaries- specifically higher inflation and the Federal Reserve pivoting to increase interest rates while simultaneously reducing their balance sheet- have come to bear in January. A near-record number of tech stocks have declined by 50% or more in recent months, representing roughly four in every 10 companies on the Nasdaq Composite Index [1]. For the first time since April of 2020 the Nasdaq closed below its 200-day moving average, a closely watched technical barrier. Historically, when this has happened, six to 12 months later the Nasdaq has moved higher two-thirds of the time [2]. The Russell 2000, an index of 2000 smaller U.S. companies, has been under the most pressure dating back to 2021. Since reaching its all-time high of 2,458.86 on November 8th, 2021, the Russell 2000 has declined -16% as of the close, January 19th, 2022, and posted a 1-year loss of -4.11% [3]. While the Dow Jones and S&P 500 have been more resilient, they are also down YTD and nearing correction territory. Bonds have also remained under pressure in 2022 with the iShares Core U.S. Aggregate Bond index down -1.66% YTD as of January 19th, 2022 [4]. Based on technical measures, it is fair to assume we will see continued downside pressure in the near term. Several unknowns remain, such as how many interest rate increases the Fed will implement in 2022 and how quickly they will taper their balance sheet. Much of this will be dictated by inflation. I agree that for the long-term health of our economy getting inflation back to reasonable historic levels is paramount. Additionally, removing stimulus from the economy must be viewed as a vote of confidence and will help to normalize the markets and allow companies to again grow organically over time. Consumer demand remains strong going into 2022. While I expect profit margins to come down, it is important to note that we are coming off a record 13% operating margin through most of 2021. Profits for S&P 500 companies rose 22% in the fourth quarter of 2021 and nearly 50% during the year [5]. While these levels are unrealistic to continue, the trillions injected into the global economy in the past two years along with a strengthening consumer provide hope that corporate America will continue positive momentum in the years to come. Along the way, expectations will continue to normalize. Other positives include that U.S. workers have received their largest pay increases in three decades [6] and the U.S. unemployment rate is at 3.9%, the lowest level since pre-covid in February 2020 [7].     

I remain steadfast in my belief that over the long term, proper diversification and aligning your portfolio to your comfort level with risk remains a prudent strategy. Trying to time the market has historically proven to be a losing strategy. With all the algorithms, speculation and uncertain news that can sway the markets day to day, remaining invested during turbulent times can help recover losses following bear markets. And although we are not currently in a bear market, I believe it is beneficial to understand that even in the worst of times, the market has ultimately recovered [8].

I believe in the long-term trajectory of the U.S. and global economy. I believe in our innovation, our commitment to excellence and our desire to build a better world. I am here for you, always, to discuss any questions you have or to review your portfolio allocation, goals, or anything else I can help with. Please, never hesitate to reach out to me.   

Thank you for the opportunity to serve you. My priority remains and always will be to ensure that you continue to receive high quality guidance and a client service experience second to none. While I continue to reach out via phone and e-mail, please know that I am available via Zoom, Facetime, any other digital technology you prefer and in person if you would like to meet. I am happy to meet with you at any one of my offices or at your home or near your home, whatever you prefer and with whatever you are most comfortable.

Wishing you, your family, friends, colleagues and community continued hope, health and positivity in the coming weeks, months and beyond!


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