Welcome to 2022! We hope you had a great December and holiday season.
December lived up to its reputation as one of the best months of the year as the indexes closed near all-time highs. For December, the Dow rose 5.4%, the S&P 500 gained 4.5%, and the Nasdaq, which has a higher concentration of technology companies, was up 0.7%.
It's been a solid year for the markets, too. In 2021, the Dow rose 19%, the S&P was up a solid 27%, and the Nasdaq climbed 21%.
December lived up to its reputation as one of the best months of the year as the indexes closed near all-time highs. For December, the Dow rose 5.4%, the S&P 500 gained 4.5%, and the Nasdaq, which has a higher concentration of technology companies, was up 0.7%.
It's been a solid year for the markets, too. In 2021, the Dow rose 19%, the S&P was up a solid 27%, and the Nasdaq climbed 21%.
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As for the events behind the market moves this month, much of the focus was on the latest strain of Coronavirus and the Fed.
Late November saw a strong sell-off in stocks as the new Omicron strain emerged. That sell-off hit the markets in the early part of December, too. However, stocks turned around and rose higher as it became more apparent that this strain was less severe.
Late November saw a strong sell-off in stocks as the new Omicron strain emerged. That sell-off hit the markets in the early part of December, too. However, stocks turned around and rose higher as it became more apparent that this strain was less severe.
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The Fed was the other big story this month as they held their final policy meeting of the year. Because inflation is running hot, they announced they would pull back on their stimulus even faster.
First, they will do a quicker wind-down of the program where they print money to buy bonds in order to keep borrowing costs low.
Additionally, they expect to raise interest rates even faster next year, which will also raise borrowing costs.
These programs have had a big impact on inflating the stock market. As they are removed, we expect to see stocks lose that tailwind and become more volatile.
First, they will do a quicker wind-down of the program where they print money to buy bonds in order to keep borrowing costs low.
Additionally, they expect to raise interest rates even faster next year, which will also raise borrowing costs.
These programs have had a big impact on inflating the stock market. As they are removed, we expect to see stocks lose that tailwind and become more volatile.
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Also, this month the Fed officially stopped using the word “transitory” when referring to inflation. As we all know, inflation is high and keeps rising and the Fed has been wrong on this subject for a long time. As a point of interest, the Fed employs over 400 PhD economists - it amazes us how the Fed can be so wrong, so often.
Data out this month showed inflation at the consumer level (what we pay in the stores) is up 6.8% over the past year, the highest level in 39 years.
Data out this month showed inflation at the consumer level (what we pay in the stores) is up 6.8% over the past year, the highest level in 39 years.
Another way of looking at inflation is at the producer level, or what businesses pay before passing the cost on to shoppers.
Inflation at the producer level (or PPI) is again at its highest level ever.
Inflation at the producer level (or PPI) is again at its highest level ever.
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As for other economic data, the data released this month still shows decent economic growth.
The manufacturing and service sectors of our economy both remain strong.
The manufacturing and service sectors of our economy both remain strong.
Retail sales are higher - but that’s only showing that people spent more at stores. Are they buying more things, or are they just paying more for the same or maybe even fewer things? It’s hard to tell from the data.
Durable goods - which are items with a longer life, like a phone or dishwasher - keep rising.
Sentiment among the general public has been optimistic…
But small business owners have been less optimistic…
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Where does the market go from here?
Stocks are on the expensive side in the short term, based on the indicators we follow. However, we aren’t seeing signs of a significant pullback in the near-term. We aren’t excited about putting new money into the broader indexes at this level - we are neither buying or selling here.
Stocks are on the expensive side in the short term, based on the indicators we follow. However, we aren’t seeing signs of a significant pullback in the near-term. We aren’t excited about putting new money into the broader indexes at this level - we are neither buying or selling here.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
