TrustWell’s Quarterly Market Review: Q4 2021

By Brett Freese

Market Highlights:

• Stocks were curiously lopsided in performance in the last quarter of 2021. Interesting notes: US Large Cap stocks greatly outperformed US Small Cap, World Small & World Mid Cap and International Developed Markets.
• To continue the above thought, the famed Cathie Wood’s Flagship Ark Innovation fund was down 29.90% in 2021. What is amazing is that the 5-year annual return on that fund is still a whopping 41.72% per year. Was 2021 just and off year and a healthy sell off or is there more to come in innovative growth stocks?
• Similarly, on December 17^th I heard one of the CNBC commentators state that 65% of all the NASDAQ stocks were below their 200 day moving average. In simple terms this means that some of the largest stocks like Apple were up on December 17th but the majority of stocks were in a clear correction. Example: Peloton Interactive (one of the biggest highfliers since COVID began) was down 76.43% in 2021.
• Corporate Bonds, Municipal Bonds, and World Bonds indices were mixed as well (see Market Scorecard) in light of rising inflation and continued growth concerns. Short-Term Government Treasuries and World Bond categories were down slightly for the quarter.
• Gold was up 3.93% price per ounce for the last 90 days.
• Bitcoin was down 3.76% for the quarter

Economic Notes:

• According to the financial markets, the world’s developed economies are now in a balancing act in wanting both growth and low unemployment while concerned about inflation.
• China continues to go through major growing pains as it struggles to manage a dictator-imposed communism vs the prosperity of a capitalistic middle and upper class.
• Supply chain issues like the long line of container ships waiting to dock and chip shortages continue to be a concern for growth.
• Value investing led in the first quarter, Growth led the second quarter, and in the last two quarters leadership was mixed with Value edging Growth by about 1% this past quarter.
• Unemployment numbers continue to improve. In fact, businesses finding enough workers continues to be a major struggle in many industries this past quarter.
• The Federal Reserve kept the Federal Funds rate target range to a historic low of 0.00 – 0.25%, however, they have begun to reduce their major bond purchases and there is an expectation for 2 or 3 rate hikes in 2022. Note: The Federal Reserve has a dual mandate to achieve both stable prices and maximum sustainable employment — clearly leaning towards the latter at this point in time.
• Inflation continues to heat up as the debate over whether this a short-term concern or a long-term issue continues. This will important to watch.
• The unprecedented spending in Washington will have long lasting effects on the borrowing cost of the US Government.
• As the financial markets anticipate economic trade to recover, we will likely face a steepening yield curve increasing the challenges to fixed income investing and a need to be more strategic in choosing wisely where in the equity markets to invest. In light of rising inflation and interest rates a careful investment strategy is warranted.
• 2022 is an Election Year. 100% of the House of representatives and 33% of the Senate is up for elections. This will clearly impact the priorities and positioning of our Washington representatives.

Historical Stock Market Declines:

Market declines and inclines rarely look the same or even feel the same, but they do happen and the ups and downs are a part of the process – It is important to have a plan/strategy so emotions don’t dictate buying or selling.

A 5% or greater loss occurs about 3 times a year
A 10% or greater loss occurs about once a year
A 15% or greater loss occurs about once every 2 years
A 20% or greater loss occurs about once every 3.5 years

Please know that when stock prices go down the “market collapse gurus” receive the most air time. Likewise, when stock prices go up all the “bull market gurus” talk about how the market will continue to be up BIG. Please know that most “gurus” are great with hindsight to justify how important it is to have their voice heard.

Market Scorecard for the last 13 weeks ending 12/31/2021:

US Equities:

+11.03%                  S&P 500 (Index of the largest US publicly traded companies)

+2.14%                    Russell 2000 (Index of 2000 Small-cap US publicly traded companies)

Global Equities:

 +2.33%                  Foreign Large – Morningstar Category

 +1.87%                  World Small/Mid Stock – Morningstar Category

US Bonds:

– 0.04%                   Corporate Bond – Morningstar Category

 -0.63%                   Short Government – Morningstar Category

 +0.60%                  Muni National Bond Index – Morningstar Category

Other:

-1.06%                    World Bond – Morningstar Category

 +3.93%                   LBMA Gold Price

-3.76%                     Bitcoin

Market Indicators:

Inflation:
6.81% as of 12/10/21  (Up 1.44% from 5.37% in September 2021)

Unemployment: 
4.2% as of 12/03/21  (Down from 5.20% in August 2021)

Fed Funds Target Rate:
0.00 – 0.25% as of 12/30/21  (Same as 09/28/21 of 0.00 – 0.25%)

Suggested Next Steps:

• Understand that market cycles are normal. The markets go up and down in mostly unpredictable directions and amounts. The ups and downs of investments many times seem to make sense only after they happen, however, market prediction is very difficult. (i.e. the next stock market crash has been predicted every year since 2008).
• Your investments are just one factor in the success of your life, money, and purpose. Make sure that you are confident in your full financial plan, so you can successfully have an amazing ROL (Return on Life).
• Your investment allocation and diversification are important factors in both risk management and future returns. Therefore, if you have questions about your investment plan, please schedule a phone, virtual or in-person meeting with your TrustWell Financial Advisor(s).