Market Insights 1.21.22Our Investment Perspective
January 21, 2022,
This has been one of those weeks where the stock market makes headlines, so we thought a quick update on what we are seeing and our strategy was worthwhile. Of course, if you have questions or concerns specific to your portfolio, please call or email anytime.
The new year has started off in a rough fashion. As of yesterday’s close, the major averages are all down: Dow Jones Average -4.9%, S&P 500 -6.7% and the NASDAQ now in ‘correction territory’ at -10.7%. With an hour of trading left today they are all declining further. This is far from a uniform move across the underlying stocks, however. Most energy, commodity, financial, defense and telecom stocks are actually UP for the year at this point. Technology, real estate, and retail stocks have taken the brunt of the decline. Several of the “Pandemic Darling” stocks are now at 52-week lows, including Twilio, Roku, Shopify, DocuSign, Disney, and Netflix. The good news is that we do not own most of these names.
Earnings season is just getting started. Next week we will get results from many bellwether companies including Microsoft, Johnson & Johnson, Visa, Apple and Chevron. The earnings results will be important, but management guidance regarding future expectations will get more attention. We expect a lot of back-and-forth trading as results continue to pour in over the next couple weeks.
Below is a chart from Strategas Research that makes another important point. We have added the highlighter mark to display where we are on the calendar. The blue line shows the average performance of the S&P 500 through all years since 1950. The red line shows the average of years that had midterm elections, as we do this year. Of course, this is just one of many factors expected to make an impact this year, but it bears consideration. We expect more of a roller coaster than normal, particularly ahead of the election. COVID, inflation, supply chain issues and worker shortages will add to investor queasiness. We worked over the last few months to improve your diversification and used the new tax year to lighten up over-sized holdings where possible. The goal was to have the appropriate long-term asset allocation for you going into a volatile year, so we would not face panic selling or cash requirements at low points.