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Mosaic Weekly Update 2.11.2022

February 15, 2022

A note to start; “Recency Bias” = a psychological phenomenon where we give more importance to recent events compared to what happened a while back.

Just when we thought that the dust was starting to settle, the markets had to go and act squirrely again. Such is life I’m afraid. In these weekly updates, I have mentioned several times that volatility would be here for a while. It’s that darn “recency bias” that we are all guilty of from time to time! Honestly, I just like it better when things are pointing in an upward direction. There does appear to be light at the end of the tunnel, but before we get to that let’s dive into the deep end first.

Tensions are heating up further along the Russia/Ukrainian border which resulted in selling pressure on the markets to close out the week. There was also sentiment midweek that the Federal Reserve could consider increasing the interest rate by 50 basis points instead of 25 at the conclusion of their March meeting. I would find this to be a very surprising move as, generally, the Federal Reserve has and should act in a more measured manner. We all know that inflation is hot and heavy right now as evidenced by the recent CPI Index (consumer price) hitting a fresh 40-year high. But more economists are now in agreement that inflation will start to recede in the second half of 2022 as supply chain issues are resolved. Keep in mind that much of the current economic data we are seeing is based on past events (30 days or more). A lot can certainly change over that time-period. While these metrics are important to take into consideration for today and future outcomes, things are changing rapidly in this current environment. From a stock market perspective, corporate earnings have looked strong in most areas, with a few pockets of weakness mostly contained to the tech sector. Corporate balance sheets remain strong while leverage and debt remain controlled. Clearly hiring remains a challenge, but the overall health of many companies has never looked better. The markets have mostly responded in a positive manner over the last 2 weeks which has been encouraging. While we still have more ground to make-up after the January sell-off, there seems to be some comfort and settling taking place overall.

Now for some more things to consider. I just returned from my first in-person conference in over two years. I had the good fortune of spending time with many of my colleagues with the opportunity to hear several economists speak to the current state of affairs. I have to say, I walked away feeling good about many of the things we have discussed here and how we have positioned our investment portfolios. Yes, there will still be “things” to resolve (geopolitical, interest rates, inflation, hiring, travel, mask mandates and Covid, etc.) but there are many positives to consider. Here are some of my personal takeaways in no specific order:

  1. Airplanes and airports are packed. While airlines are not back to full strength, there are few empty seats.
  2. Hotels are booking more rooms. I stayed in 3 different hotels on this trip and each one was near full capacity.
  3. Rental cars remain scarce. This will be problematic for summer travel so book your cars early!
  4. Mask wearing, while mandatory still in the airport/airplane setting are not to be found in a lot of places (this was contained to southern California and Arizona in my case). I’m not advocating either way and feel strongly that you need to do what is legal and best for you, just noting what I saw in person.
  5. Supply chains are moving in a big way. I saw more truck and rail traffic than I can recall seeing in a long time.

I have been hearing and reading a lot recently on these topics, specifically discussing how the second half of 2022 will look much different than what is in front of us today. It is hard to picture things changing much given the prices we are paying and the services that are lacking today. However, seeing it in person gives me more reason to believe that things could indeed look much different in the months ahead. It won’t happen overnight, but perhaps one day in late summer, we will wake up to a market with more forward-looking momentum. It will be important to remember that term “recency bias” again. While it’s easy to focus on the near-term volatility, we need to remember the long-term performance of our overall markets. Enduring the difficult times now, prepares us for the “new” good times in the future.

Have a great weekend!,what%20happened%20a%20while%20back