AS PREDICTED, VOLATILITY IS HERE "ADV" | CROUCH CONNECTION|FEBRUARY 13th, 2022
AS PREDICTED, VOLATILITY IS HERE
As you may remember, we suggested that investors may experience a volatile year in 2022. As Linda Duessel at Federated Investors pointed out at the time, election years, particularly mid-term election years like this year, tend to be more volatile.
January certainly started the year off with a swoon, and we will probably see more market “re-sets” as the Fed has added uncertainty by signaling more interest rate increases this year. Again, with four new Fed Presidents on the rate-setting FOMC that seem to be wanting to put their stamp of approval on the rate-hike talk, the market could be dealing with quite a few cross-currents in 2022.
Normally attempting to trade based on short-term expectations is a bad idea, but volatility could offer opportunities to upgrade our portfolios by switching to some of the faster-growing, high-quality companies that have been trading at uncomfortable valuations. We took advantage of that opportunity in some cases in the January drop and will be looking for any additional opportunities that the market may provide.
WALKING A TIGHTROPE
Whoever writes the headlines for Linda Duessel’s weekly letters at Federated certainly knows how to capture your attention. Her headline this week, WALKING A TIGHTROPE, accurately describes the Fed’s dilemma in dealing with the inflation we are seeing. Is it cresting yet, or do they need to panic and raise rates now?
It is certainly easy to make a case from history that they need to raise rates rapidly, but none of the historical examples of inflation were anything like the Covid crash and rebound. The current global economy vs. the limited international trade that existed prior to the internet changes the dynamics, making supply chains longer and more complex.
Will interest rate increases stop inflation? While rapid rate increases could put the brakes on the economy, no one really wants to do that, especially the Fed. After all, one of their congressional mandates is to maximize employment, and a recession would cause many layoffs…again not what we want.
Some reports from supply chain managers indicate they are anticipating some relief in supply chain issues. Hopefully we’ll see more relief in that arena before the Fed feels the need to drop the hammer on our economy.
FOCUS ON EARNINGS
Again calling your attention back to our January letter, in the long run, it really is all about earnings growth, and most of the things people worry about come and go with little long-term impact on the markets. Industry analysts, including Raymond James, continue to expect that companies will continue to make more money in 2022 than they did in 2021. Positive earnings trends historically bode well for the markets, so we continue to expect a positive outcome for the year.
We are using our meetings with clients these days to try to re-focus on the long term and ignore the daily headlines. Short-term trading based on political and geo-political events, in my experience, has not been profitable. Focusing on where consumers are spending their money is usually a better strategy.
Well-diversified portfolios focused on money flows has produced our best returns in years past. We expect more of the same going forward.
Dave Crouch Kim Blackburn Kay O’Connell
Registered Principal Branch Operations Manager Financial Advisor
"We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors...Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Dave Crouch and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions