Fee Only Certified Financial Planner (CFP) Jacksonville & Ponte Vedra

View Original

The Financial Quarterly, 4th Quarter 2021

Markets delivered exceptional performance in a year that had a little bit of everything: politics, bubbles, meme stocks, inflation, runaway rallies, and sudden drops. Let's take a look at how markets performed last year and what we expect will happen in 2022.


By Jon Castle

How did markets perform last year?

What Can We Expect 3-9 Months Ahead

"While pandemic disruptions remain, 2022 offers hopes of greater normalcy."

What we expect from 2022

While we generally try to avoid making too many predictions – it is necessary to clarify one’s “situational awareness” to crystalize an investment policy at any given time.  Effectively, discussing what we think is happening and what we think will happen in the future because of a study of past events tends to sound very much like making predictions.  So… at the risk of being cliché, here is our understanding of current events and how we think things are most likely to play out throughout 2022.

  • We feel that inflation will continue through mid-2022, as consumer demand remains strong, but supply continues to be a challenge.

  • We believe interest rates will rise, which will create headwinds for growth stocks and make dividend-paying, value-oriented stocks more attractive than they have been previously.

  • There will be more market unrest and uncertainty in 2022 than in 2021. We can expect “doldrums,” – periods of choppy, sideways market behavior at times.

  • We do not believe we will see a recession in 2022 or even in 2023 unless an unpredictable and highly improbable event (such as another pandemic?) appears. This is meaningful in that recessions cause deep market crashes, while occasional minor corrections can occur at any time. Market crashes are best avoided if possible, while market corrections are generally best endured or even used as buying opportunities.

  • Given the fact that bond prices drop as interest rates rise, we feel that returns from fully diversified bond portfolio component will be generally mediocre but not necessarily negative, as higher interest payments from some types of bonds may offset price drops in others.

  • Given the adaptability and innovation inherent in the US economy – more so than any other economy in the world - specifically identifying sectors or companies that are going to outperform the market in the future – and incorporating them in portfolios in a timely manner without tax consequences – is difficult. Accordingly, we are gradually returning PARAGON portfolios to be low-cost, tax-efficient, generally balanced between growth and value and more reflective of the overall market indices versus trying to outguess the markets themselves.

As a whole, we are optimistic and believe that it is still a very positive time to be an investor – especially a patient investor.  We currently are fully invested, but, given that nearly all market crashes accompany recessions, also remain on the lookout for any quantitative data suggesting a recession looms.  Currently, despite the challenges that are apparent everywhere one looks - no quantitative recession prediction models are in 'alert' territory.

If history is a guide, it should be several years after the Fed’s first interest rate hike before we have to worry about a recession caused by a too-tight monetary policy.  We are tailoring our investment policy to reflect an expectation of continuing, but muted growth as it typical of a slowly tightening Fed – but we will also remain vigilant for any signs of an early economic cycle breakdown should that come to fruition.

We at PARAGON wish you a Happy New Year and a prosperous 2022!


Sources:

https://www.cnbc.com/2021/12/30/stock-market-futures-open-to-close-news.html

https://www.cnn.com/2021/12/31/economy/economy-covid-inflation-2022/index.html

https://markets.businessinsider.com/news/stocks/stock-market-outlook-5-catalysts-keep-bull-market-thriving-2022-2022-1

https://www.marketplace.org/2021/12/31/what-might-consumer-spending-look-like-in-2022/

​​https://www.cnn.com/2021/12/03/perspectives/jobs-labor-market-trends-2022/index.html

​​https://www.cnbc.com/2021/12/16/why-former-us-treasurer-is-optimistic-about-economy-in-2022.html

https://www.fitchratings.com/research/sovereigns/north-america-to-grow-strongly-in-2022-policy-will-tighten-14-12-2021

U.S. Economic Outlook, Equity Outlook, Consumer Spending, Labor Market, Business Outlook, and Fiscal Policy gauges: https://www.cnr.com/insights/speedometers.html (December 2021)

The S&P 500 is a stock index considered to be representative of the U.S. stock market in general. The NASDAQ Composite Index is an unmanaged composite index of over 2,500 common equities listed on the NASDAQ stock exchange. The Dow Jones Industrial Average is a price-weighted index that tracks 30 large, publicly traded American companies.

All index returns exclude reinvested dividends and interest. Indices are unmanaged and cannot be invested into directly.

Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. This content may contain projections, forecasts, and other forward-looking statements that do not reflect actual results and are based on hypotheses, assumptions, and historical financial information. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Please remember to contact Paragon Wealth Strategies, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that Paragon Wealth Strategies, LLC effect any specific transactions for your account.  Please be advised that there can be no assurance that any email request will be reviewed and/or acted upon on the day it is received-please be guided accordingly.  A copy of our current written disclosure statement discussing our advisory services and fees continues to remain available for your review upon request.