2022 1st Quarter Investment Bulletin
Executive Summary
2021 U.S. stocks outperformed most other asset classes especially in the Large Cap and technology segments
Inflation swelled on the backs of aggressive monetary stimulus coupled with labor issues and supply-chain disruptions
Political uncertainty and polarizing differences in opinion are omni-present
Earnings growth continues to reward patient investors
A Productive Year for Wealth Accumulation
For the third year in a row, U.S. stocks achieved significant gains with the Wilshire 5000, an index of the total U.S. stock market, now averaging more than 25% per year since 2019.
A consistent theme throughout this period of expansion has been the dominance of U.S. stocks vs. other major asset classes and the cost of diversification when performance is highly concentrated.
An even further dissection of the U.S. market performance reveals that the Large Cap Growth sector and specifically technology was overwhelmingly the biggest driver of returns. An ongoing concern we see is the risk-carry of technology stocks and the effect they can have on the market.
We have detailed some historical analysis which you can review HERE.
Themes for 2022
Inflation and the Economy
On the heels of both the 2008 Financial Crisis and the 2020 COVID Shutdown the U.S. government deployed massive fiscal stimulus programs injecting historic amounts of capital into the monetary system. Despite that fact, inflation had stayed stubbornly low for an extended period of time until a combination of labor shortages and supply chain issues sent consumer prices soaring in 2021. We expect inflation to be a lingering issue and the Federal Reserve has stated interest rate increases are on the way. The goal of Fed policy is to moderate inflation which can have a cooling effect on economic activity. That said, the Fed has also demonstrated they will be as proactive as necessary to avoid major economic downturns.
Politics
Political woes are an ever-present conversation we have with all clients both Republican and Democrat. We continue to reiterate with a stance we described in detail leading up to the 2020 presidential election (can be read HERE): Markets continue to grow overtime with very few exceptions and regardless of who is in the White House.
Outlook
Valuations for certain segments of the market are historically high and present a risk to the overall return expectations. We also see the headwinds of inflation and monetary policy driving volatility for much of the year. Overall, we believe the economy has room to expand as COVID abates and trends to full employment continue. We expect earnings growth will continue to reward investors.
For our clients, we are always taking portfolio risk into account at the individual household level. What is acceptable to some, may not be to others and that is why we strive to create an individualized approach for each client and business we serve.