We welcome in 2022 with, drum roll please……..volatility!! Shocked, not shocked. The Federal Reserve released their meeting minutes from December and indicated that a more robust and aggressive “dialing” back of the easy monetary policy is likely coming sooner than many anticipated. We have mentioned several times that monetary and interest rate policies were by far their most effective tools to keep inflation contained and the markets from overextending. The Federal Reserve has been very accommodating and willing to let things stay heated up as the recovery has continued, but clearly, the time has come to slow things down. The Federal Reserve has two primary long-range goals: controlling inflation (hawkish) and maximizing employment (dovish). I would venture to say that we have more than recovered to some degree. Although we are still seeing some lingering signs from the pandemic, the reality is that in general, the economy is healthier and doing well. I know it may not feel that way since we are yet to go out and live a normal life, but corporate balance sheets and our own bank accounts might tell us otherwise. The unemployment data released today showed a robust employment environment for December. It seems that the Federal Reserve will be moving into a more hawkish stance now as containing inflation becomes the top priority.
The technology sell-off picked up momentum to start the year, similar to what we started to see during the 4th quarter. The tech heavy Nasdaq Exchange dropped over 4% this week, while the other benchmark exchanges retreated as well. In the near term, the “sell the winners” mentality continues to roll on. The 10-year U.S. Bond also rose to a new 2 -year high of 1.77, another sign that interest rates are set to move higher. What we are seeing is typical and normal during an economic cycle (expansion, peak, contraction, and trough). While I do not believe we are at the peak, we are certainly moving through the normal expansion phases. I still believe there is growth to be achieved, just at a more measured and slower pace.
We have begun to adjust our portfolios accordingly in anticipation of some of these expected changes and feel confident with the direction we are heading. As always, we welcome the opportunity to discuss and review your individual situations by phone, in-person or Zoom.
Have a wonderful weekend!
https://www.cnbc.com/2022/01/05/fed-minutes-december-2021.html
https://www.cnbc.com/2022/01/07/heres-where-the-jobs-are-for-december-2021-in-one-chart.html