January was a bumpy ride for investors as the market digested inflation concerns and potential actions by the Federal Reserve. In February, it appears that market volatility has moderately settled even while an interest rate hike is anticipated by late March. With the underlying U.S. Economy strong and earnings growth expected to stay on track, we believe 2022 will have returns in line with long-term averages of 8-10%. We continue to see a shift from high growth names into more value-oriented stocks, particularly considering where we are in the market cycle. We still favor equities over bonds, as fixed income faces challenges in a rising interest rate environment.
In the coming months, we will continue to gear up for our transition to being a Registered Investment Advisor. We will use BNY Mellon | Pershing to custody our clients’ assets going forward and will no longer be affiliated with Wells Fargo Advisors Financial Network. We are still anticipating our transition to begin mid-second quarter of 2022. No action is required for you at this time, but we will be in touch with more information very soon. We are very excited about this transition! Please reach out to your advisor or client service associate if you have any questions or concerns.
As season is winding down, we have one more opportunity in March for you to join our client luncheon series at the Ritz Carlton Beach Resort in Naples. Please see page 4 of the newsletter for how to RSVP. As always, please contact our office if you have any questions or if we may be of help in any way. It is our privilege to be of service to you and your family.
WHAT HAPPENED IN JANUARY?
January came in like a lion…and went out like…a lion! Historically, January is one of the better months of the year for equity markets as positive cash flow enters the market. Big institutions and pension plans rebalance portfolios, individuals invest year-end bonuses, and a new year always brings market optimism. This year, within the month of January, we saw the S&P 500 and the NASDAQ hit correction territories with respective pullbacks of 10% and 15%. The last month-end trading days rescued a challenging January with the S&P 500 closing down 5% for the month and the NASDAQ finishing down 10%. This was the largest January decline
since 2009 in the grips of the Great Recession! It is critically important to note, however, that we get corrections all the time. In fact, the average intra-year correction is down 14% over the last 40 years. Let us explore what is different and what changed in 30 days to make the market so volatile.
ARE WE FINALLY COMING TO GRIPS WITH THE I-WORD…INFLATION?
By now, it is impossible to watch or read the news without hearing about supply chain problems, trucker shortages, empty shelves and difficulty finding workers. This has manifested in much higher inflation than contemplated just a few months ago. Most of us by now have had first-hand experience with the higher prices in the grocery store and gas stations, the longer wait times for deliveries and degradation of services due to understaffing. The consumer price index (CPI) came in at 7.5% in January, up from 7.0% in December. This is the highest level of CPI since the 1970s. This abrupt development seemed to have been ignored in December as the equity market roared higher into year end and the bond market yawned…
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