In many areas, the year 2021 provided both challenges and opportunities. In our market year-end review, we will highlight some noteworthy developments in the markets and the economy, as well as provide an outlook on what we anticipate for 2022.
Interest Rates – Interest rates fell very low in 2020, so they didn’t have much choice but to rise in 2021, which made bond funds more difficult to manage. When interest rates increase, bonds tend to lose money, and the average bond fund had an uphill battle in 2021.
Oil Prices – When the price of gasoline increases, the cost of many products and services increase. It costs more for the farmer to harvest his field, the average employee to drive to work, and the ship full of shipping containers to deliver goods to the port. Plastic, which almost everyone touches every day, is also produced from oil. Oil prices increased nearly 50% in 2021, leading to widespread inflation.
Federal Reserve Actions – When the Coronavirus shut down the United States, the Federal Reserve took extraordinary measures to help revive the economy and stock market. One of the most influential was Quantitative Easing (QE), which is the process of printing money and in this case, buying investments with it. This helped fuel a positive stock market overall in 2021. The Federal Reserve has provided details on their plan for 2022, which includes the elimination of QE, three interest rate increases in 2022, and three additional interest rate increases in 2023. This should help curb inflation, potentially hurt bonds, and the stock market may become more volatile after the printing presses are turned off.
A Look at our Portfolios in 2021
Technology stocks took a tumble in the first quarter of 2021, which hurt our portfolios. As a result, we made some changes to our overall portfolio management process and added some additional research companies into our daily operation in late March. This helped boost performance as we ended the year on a high note. We encourage you to check out your statements to see your individual performance and give us a call to set up a review meeting if you’d like to discuss it. Our Stock Rotation portfolio is our most risky portfolio, which had an exceptional amount of volatility. Still, we made some improvements to our process within that portfolio that we believe will help make 2022 a potentially more smooth ride.
Possible Outcomes for 2022
In the second year of a presidency, it is common for the administration to use every possible means to boost the economy and stock market in advance of midterm elections. This can potentially provide a good tailwind for stocks. On the Covid front, it’s entirely possible the worst is behind us. New “at home” treatments from Pfizer and Merck, combined with vaccines, monoclonal antibodies, and other treatments, as well as the Omicron variant so far proving to be less deadly, could all lead to 2022 being the year that things eventually get back to normal. This could be extraordinarily bullish for the stock market, especially the leisure and travel industries.
The Federal Reserve will raise interest rates and stop the Quantitative Easing, which may slow down the stock market. However, the underlying economy is strong, with low unemployment, a robust housing market, potentially good year-over-year sales numbers for S&P 500 companies, and above-average GDP growth possible throughout 2022. At this point, we are overall optimistic for 2022. We will continue to review our investment portfolios and research process daily to do everything we can to protect your assets and uncover opportunities.
Have More Questions?
We would love to meet with you to discuss investments, retirement income planning, college planning for kids and grandkids, tax preparation, health insurance, and other financial planning topics. To schedule an appointment, please contact our office by calling (586) 226-2100!
We hope that the start of the new year will be a healthy, safe, and happy one for you and your family.
Kindest regards,
Bob, Ken, Jim, Zach, and James
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Notes & Disclaimer: Stock market indices, like the S&P 500 Index, are unmanaged groups of securities considered to be representative of the stock market in general or subsets of the market, and their performance is not reflective of the performance of any specific investment. Investments cannot be made directly into an index. Historical returns data are calculated using data provided by sources deemed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, or correctness. This information is provided “AS IS” without any warranty of any kind. All historical returns data should be considered hypothetical. Past performance is no guarantee of future results.
This communication is only intended for recipients who reside in states where our agents are licensed to sell these products. Investment advisory services are offered through Summit Financial Consulting, LLC, an SEC registered investment advisor. Registration does not imply a certain level of skill or training. Summit Financial Consulting Investment Advisor Representatives do not render tax, legal, or accounting advice. Insurance products and services are offered through Summit Financial Consulting, LLC. Note: Please update Summit Financial Consulting, LLC, if your investment objectives have changed or if the personal or financial information previously provided has changed. The investment advisory disclosure document that describes Summit Financial Consulting investment advisory services account is provided to you annually. Please consult Summit Financial Consulting for a copy of this document should you need an additional copy. All guarantees are subject to the claims paying ability of the issuing insurance company. Past performance cannot predict future performance. It is not possible to invest directly in an index. The Sherman Group, LLC is not associated with Summit Financial Consulting, LLC in any way, other than a research sharing partnership. Back testing is more heavily scrutinized than any other type of investment analysis because it can be updated to take advantage of past data. The algorithms and trading signals that we receive from the Sherman Group, LLC were created using back testing with the goal of creating a sustainable research process. We have reviewed data from the entire 20 year period which was mostly back tested, and have also personally reviewed the live data for the past 5 years and feel comfortable with it, but we encourage you to meet with us and ask questions so you are fully informed on what we plan to do with your investment assets at TD Ameritrade. It is important to look at fees, taxable repercussions, and trading frequency when looking at a rate of return number. There is no perfect system or research feed, and Sherman Group, LLC has had both longer term and short-term periods where they lost money. Investing involves risk, and these portfolios are no exception.