To put it mildly, things were all over the place this week. Between Federal Reserve headlines, corporate earnings releases, tensions on the rise globally and Supreme Court Justice Breyer announcing his retirement, it was a “pick your issue and run with it” kind of week. The volatility remains red hot across our broader financial markets with the technology sector still taking the brunt of the storm. The NASDAQ Index has now retreated nearly 15% from its all-time high reached in late November. In spite of the numerous challenges at hand, GDP (gross domestic product) grew at a 6.9% pace during the 4th quarter, well ahead of expectations. I do, however, view this as a lagging indicator as we have already seen a significant slow-down to start the year. It is important to note that this was the fastest pace of growth seen since 1984 and shows the resiliency, overall, of our economy. I spent a good amount of time this week digesting and reviewing a lot of material centered around the recent pullbacks and what it means in the near-term and for the second half of the year. What is interesting to note is that durable goods (cars, appliances, HVAC equipment, etc.) saw a tremendous uptick in demand as stimulus payments were sent to millions of Americans throughout the earlier stages of the pandemic. This surge in demand was nearly 30% higher than any levels previously seen and can explain why our supply chains were stretched to the breaking point. Most of the world has evolved to a “just-in-time” inventory system and supply chains were never built to handle a surge in demand that we have seen over the last two years. These types of durable goods have a much longer replacement cycle than certain other types of goods. There are strong early indications that some of these bottle necks we have been hearing and reading about may be starting to ease. Apple released their quarterly earnings Thursday after the market close and CEO Tim Cook noted in his prepared statements that they were starting to see improvements in their respective supply chains. Perhaps there is light at the end of the tunnel.
We finally received more clarity from the Federal Reserve this week, indicating that the first increase in interest rates will likely occur at the conclusion of their March meeting. Currently, most economic forecasters are expecting a total of four rate hikes to take place over the course of 2022. While this is not surprising to hear at this point, it is a welcome change to finally be able to plan accordingly. In typical fashion, the markets responded by being volatile! We had several large intraday swings and if you only looked at the closing prices daily you missed all the fun. We did, however, finally see buyers stepping in which was something we have not witnessed much to start the year. It is clear to me that there is value to be found and opportunities in certain areas. One of the larger mutual fund managers we follow closely mentioned during a market presentation midweek, that they had specifically invested over $2 Billion dollars into equities over the last several trading days. There will certainly be more action to come but it is refreshing to hear that other strategic, long-term investors see opportunities ahead as well.
As might be expected, we have been busy this week speaking with many of you and digesting a lot of information. It is normal to feel a bit concerned and nervous at times when we see volatility like we have to start the year. Just remember that we have seen this before, and it has been much worse! What we are seeing is normal. The dynamics in the marketplace are adjusting to the fiscal policies needed to keep our overall economy on track. We are adjusting along with those changes and as your fiduciary we will always keep your best interests front and center. If you would like to connect with us and speak more directly to your situation, please don’t hesitate to reach out. I’ve said it before, and it simply doesn’t change; we are all in this together!
Have a wonderful weekend!
https://www.cnbc.com/2022/01/26/fed-decision-january-2022-.html