Uncertainty and selling pressure have continued into the second week of January as investors continue to weigh in on the prospect of increased interest rates and Omicron fatigue. Looking back a year ago, our focus was on the impending change in our country’s leadership, continued stimulus being added to the system, and a strong fear of increased taxes across the board. The Federal Reserve, at that time, was striving for a more robust employment environment and to see inflation get to and remain above the 2% target. Well, a lot has certainly transpired over the past 12 months as evidenced over the past week. The CPI (Consumer Price Index) which is a measure used to gauge inflation and released this past Wednesday, showed a rise to 7% in December. This is the fastest climb in the index seen in the last 40 years and a stark contrast to what we were thinking only a short time ago. This number was consistent with what economists expected and we briefly saw the market rally to some degree midweek. The flight to higher quality investments and safety seems to be still in motion while the dust settles, and a direction is found.
Corporate earnings kicked off this past week with the financial stocks being some of the first major companies to announce 4th quarter earnings. Citigroup, Wells Fargo, and J.P. Morgan reported a mixed bag of results as all three companies cited challenges, including wage inflation and increased expenses as headwinds moving forward. We know that growth, especially in the near-term, will likely look more measured as the “great resignation” coupled with low unemployment lingers on. Wages have been and will certainly continue to increase in hopes of bringing new talent and workers into the fold. I suspect these types of talking points will be plentiful as more companies report their 4th quarter results in the weeks ahead. We have been discussing these topics at length in our weekly updates and the reality of the situation clearly shows that changes will be forthcoming to adjust and pivot while keeping the overall recovery and economy on track.
We have been in motion ourselves, adjusting our investment holdings where needed over the last several weeks. Shortening our fixed income duration, adding more value, and increasing our international exposure seems prudent at this time given the backdrop here in the U.S. As always, we welcome the opportunity to speak with you individually as it pertains to your specific strategies and goals. This is certainly a team effort, and we value the relationships we have built with all of our wonderful clients.
I went back and pulled the weekly update I sent during this same time frame one year ago and I noticed I had included the following reflections:
My personal takeaways from 2020: Flexibility, Patience, Kindness, Exercise, and Wine (not necessarily in that order)!
My take on 2021 reflections: Still need to have flexibility, Resilience, the new normal, exercise, and wine sometimes shared with a friend while waiting for the next variant. Will it ever end?