February 26, 2022 Weekly Equity Market Recap. The unprovoked invasion of Ukraine by Russia shook the markets and most of the civilized world. Client portfolio had established hedges for inflation and rising rates, such as additional gold, commodities, treasury inflation-protected securities, energy and financials. However, with geopolitical risk jumping, we reduced portfolio risk a bit & added addition loss hedges. Volatility is now at one of its highest levels for the last decade, and while the jury is still out on whether the pullback will remain a correction or turn into a bear market, equity market is being re-rated not just for inflation and rising rates now, but geopolitical risks. Notwithstanding the humanitarian consequences of war, there are also very disruptive economic consequences that must be considered by investors. Case in point, Russia produces 11% of world oil and 30% of Europe’s natural gas. Russia is also the world’s top wheat exporter. Together with Ukraine, both account for roughly 29% of the global wheat export market. Rising food and energy prices would only be exacerbated with additional price shocks, especially if core agricultural areas in Ukraine are seized by Russian loyalists. Then, our Newsletter's “China” geopolitical event statement clearly is tied to the fragility of Taiwan’s independence and China’s view that Taiwan remains a renegade province of its mainland. It would not be unexpected for hostile repatriation actions to occur in this region, where 94% of semi-conductor chips just happen to be produced in Taiwan. On the positive side, and the reason a good amount of risk remains in portfolios are: 1) The U.S. economy is still growing at a 5-6% pace and escalating world tensions that might disrupt global economies could trigger less aggressive interest rate actions by the Federal Reserve. Further, of the past 20 corrections that have occurred in the S&P 500, including those that have morphed into a bear market, defined as a 20% decline from a recent peak, the S&P 500 has ended higher 70% of the time. Also, stocks do tend to perform well just after they enter correction territory. The average S&P 500 gain for the 12 months following a close into correction territory is 9.3% dating back to 1998, according to Dow Jones Market data; 2) Looking at 29 different geopolitical crises starting with WWII and found that on average, stocks were higher 3-months after a geopolitical shock, and following 66% of events, they were higher after only one month and, 3) If you missed the best 10 trade days in the past 20-years, you would have made half the S&P 500 return (if all stocks); and, 4) If you missed the best 20 trade days, you would have made no money in stocks.
February 19, 2022 Weekly Equity Market Recap. The S&P 500 dropped 5.7 percent for the week, marking its sharpest weekly decline since March 2020, on nonstop news of Russia preparing to invade Ukraine. Then, markets were further rattled with another jump in both oil prices and the Producer Price Index. The market is also concerned about the Fed Reserve interest rate hikes, but from an historical basis starting in the 1950s to today, almost all rate hike cycles have been followed by positive S&P returns, with S&P averaging about 9% in past dozen rate-rising cycles. Indeed, Goldman Sachs updated their S&P 500 target return to 4,900 targets, which implies a 12% gain for U.S. equities from the current values, or 4% for the full year. Finally, we reiterate our own 2022 forecast from back in early January, which appears to be playing out: “choppy” market environment with “downside volatility” and a “minimum -10% intermittent correction” with volatility “more near-term in nature.”
February 12, 2022 Weekly Equity Market Recap. The stock market is continuing to reprice risks – rates, inflation & geopolitical – which elevates volatility. After two weeks of recovery gains, the major U.S. market indices finished down on the week: the S&P 500 shed -1.8% and the Nasdaq lost -2.2%. However, Friday’s announcement by the U.S. that Russia’s invasion of Ukraine was eminent essentially moved the stock market from flat to a loss on the week. Further, the blunt tool used to fight inflation by the Federal Reserve of interest rate hikes doesn’t solve the root of the problem, such as energy supply (more policy) and supply chains shortages, such as semiconductors which are hurting autos, smartphones, etc. The silver lining has been the stabilizing force of healthy corporate earnings, which has kept stocks in a range bound trade range, albeit on the lower end.
February 5, 2022 Weekly Equity Market Recap. The U.S. equity markets notched a second week of gains in another volatile trading week: Nasdaq led the equity indices by ending week up 2.4%, with the S&P 1.6% higher and Dow Jones advancing 1.1%. The forward 12-month P/E ratio for the S&P 500 is now at 19x, down from 21x, but still slightly above the 5-year average of 18.5x. Going forward, we continue to expect a wide trading range that will keep the indices in a sideways pattern until there is better clarity on the economic impact of inflation and rising interest rates; in particular, whether the rising prices will ebb in the coming months prompting less hawkish Federal Reserve. Employment and corporate earnings remain robust and supportive element to the markets. Indeed, with 76% of S&P 500 corporate earnings having beat EPS estimated so far in Q4 and January jobs adding 467,000, the economy is showing a pattern that defies omicron and work shortages.
January 2022 Monthly Stock Market Review: U.S. stocks end January on a two-day rally but still chalk up worst month since March 2020. For the month, the S&P 500 lost -5.3%, the Dow Jones shaved off -3.4% and the Nasdaq dropped -9%. A point of optimism is that corporate profits keep climbing with fourth-quarter profits rising 24% for companies in the S&P 500 compared with a year earlier, according to the market data service FactSet. Hence, we don’t think there is a big risk of recession at this beginning of the year juncture. Further, the S&P 500 had technical support when it hit a -10% intraday loss, before rebounding. Another positive consideration is Goldman Sachs released a note saying corrections are buying opportunities and rarely turn into bear markets. Historically, the prolonged bear markets occur during the recessions , and inverted yield curve precedes the recession by 9-12 months; yet, the yield curve remains upward sloping.
February 19, 2022 Weekly Equity Market Recap. The S&P 500 dropped 5.7 percent for the week, marking its sharpest weekly decline since March 2020, on nonstop news of Russia preparing to invade Ukraine. Then, markets were further rattled with another jump in both oil prices and the Producer Price Index. The market is also concerned about the Fed Reserve interest rate hikes, but from an historical basis starting in the 1950s to today, almost all rate hike cycles have been followed by positive S&P returns, with S&P averaging about 9% in past dozen rate-rising cycles. Indeed, Goldman Sachs updated their S&P 500 target return to 4,900 targets, which implies a 12% gain for U.S. equities from the current values, or 4% for the full year. Finally, we reiterate our own 2022 forecast from back in early January, which appears to be playing out: “choppy” market environment with “downside volatility” and a “minimum -10% intermittent correction” with volatility “more near-term in nature.”
February 12, 2022 Weekly Equity Market Recap. The stock market is continuing to reprice risks – rates, inflation & geopolitical – which elevates volatility. After two weeks of recovery gains, the major U.S. market indices finished down on the week: the S&P 500 shed -1.8% and the Nasdaq lost -2.2%. However, Friday’s announcement by the U.S. that Russia’s invasion of Ukraine was eminent essentially moved the stock market from flat to a loss on the week. Further, the blunt tool used to fight inflation by the Federal Reserve of interest rate hikes doesn’t solve the root of the problem, such as energy supply (more policy) and supply chains shortages, such as semiconductors which are hurting autos, smartphones, etc. The silver lining has been the stabilizing force of healthy corporate earnings, which has kept stocks in a range bound trade range, albeit on the lower end.
February 5, 2022 Weekly Equity Market Recap. The U.S. equity markets notched a second week of gains in another volatile trading week: Nasdaq led the equity indices by ending week up 2.4%, with the S&P 1.6% higher and Dow Jones advancing 1.1%. The forward 12-month P/E ratio for the S&P 500 is now at 19x, down from 21x, but still slightly above the 5-year average of 18.5x. Going forward, we continue to expect a wide trading range that will keep the indices in a sideways pattern until there is better clarity on the economic impact of inflation and rising interest rates; in particular, whether the rising prices will ebb in the coming months prompting less hawkish Federal Reserve. Employment and corporate earnings remain robust and supportive element to the markets. Indeed, with 76% of S&P 500 corporate earnings having beat EPS estimated so far in Q4 and January jobs adding 467,000, the economy is showing a pattern that defies omicron and work shortages.
January 2022 Monthly Stock Market Review: U.S. stocks end January on a two-day rally but still chalk up worst month since March 2020. For the month, the S&P 500 lost -5.3%, the Dow Jones shaved off -3.4% and the Nasdaq dropped -9%. A point of optimism is that corporate profits keep climbing with fourth-quarter profits rising 24% for companies in the S&P 500 compared with a year earlier, according to the market data service FactSet. Hence, we don’t think there is a big risk of recession at this beginning of the year juncture. Further, the S&P 500 had technical support when it hit a -10% intraday loss, before rebounding. Another positive consideration is Goldman Sachs released a note saying corrections are buying opportunities and rarely turn into bear markets. Historically, the prolonged bear markets occur during the recessions , and inverted yield curve precedes the recession by 9-12 months; yet, the yield curve remains upward sloping.
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