PFA Updates

Jan 25, 2022

Hello Friends,

As of the market close today, Monday 1/24/2022, the key indexes of the stock market

are near "correction" territory, which is defined as a 10% or more decline in value.  The DJIA is down 7.2% and the S&P 500 is down 8.7% from their recent peaks. It becomes a Bear Market, by definition, if the drop exceeds 20%.  No matter how you slice it, corrections never feel good.  Our advice: don't panic. 

We have been here many times...and this, too, shall pass.  As Pete Carmasino of Chaikin Analytics likes to say, "markets go up 'over time', not just 'all the time'."[1] Investors are concerned about a lot of things these days: rising inflation, the continuing pandemic, Fed interest rate increases, the Russian/Ukraine crisis, supply chain issues, etc. 

There is always something to worry about, but history has proven that the stock market eventually recovers and goes on to new highs [2] To bring color to this historical fact, MFS reports in its "By the Numbers" that over the last 50 years, the S&P 500 index has been positive 80% of the time with an annual increase of 11.1% in that 50-year period.  Think about it, if you could go to Las Vegas and win 80% of the time, would you be going more often?

Our Investment Committee met last week to review our Model Investment Portfolios, as well as economic and market reports.  We have some "to dos" on our list for this year, but overall, we like our investment models at this point.  Broad diversification among stocks, bonds and cash will help us to weather the current downturn. 

For clients who are taking regular withdrawals for retirement income, we have bonds and cash reserves built into our strategy.  For clients who are saving into retirement accounts and might have excess cash in your bank accounts, now might be a good time to add to your investment account and buy shares of stock in some great American companies that are selling at a discount. 

Below is some interesting commentary from economists, market technicians and money managers we follow.  We hope some of their thoughts will help us to keep a long-term perspective.

Regarding the Economy

• “The Conference Board's Leading Economic Index increased by 0.8% in December after a .07% rise in November.  Although this wasn't a blockbuster showing, it does highlight that the economy is expanding, albeit at a slow clip.” [3]
• “Most economists expect a slowdown from 2021, but continued expansion.”  Wells Fargo and LPL Financial forecast 4.5% growth for 2022.  “S&P 500 earnings are expected to grow 9% in 2022 according to FactSet.  That's well above the 10-year average of 5%...”[4] (Investors.com)

Regarding the Stock Market

• A Bankrate.com survey of analysts reports 70% believe the market is overdue for a correction.  But what's interesting, is that every single analyst in the survey, expects the S&P 500 to rise by the end of 2022.  These market analysts expect the index to grow 8% by the end of the year, just below historical levels. [5]
• “Sam Stovall, chief investment strategist at CFRA, said he viewed the current slump for the markets as ‘a very typical tumble.’  ‘Is it a crash?  No. But it is an average decline, believe it or not, it is.’" [6]
• A fair value estimate for the S&P 500 is 5,250 in 2022. [7]
• The S&P 500 Index has the potential to challenge the 5,000 level in 2022. [8]
• There is likely to be a US stock market correction in the first half of 2022, but we expect a relatively swift recovery. [9]

Good Nuggets to Ponder

• “Don't get into a negative funk, though.  This is a short-term pullback that could get worse before it gets better.  But remember that the good companies will stay in business for many years...and over the long haul, these pull backs will be blips on the radar.  That's why it's critical to be patient during these moves lower...they won't last forever.” [10]
• “The asset choice in 2022, as it was in 2021, will be equities; because massive Covid stimulus is still pumping growth and should persist for a couple of years.  Also, pent up demand should keep household spending going, while businesses rebuild inventories and boost capital spending.  Bogdanova sees no sign of a recession.” [11]
• “In general, I think it most likely that in the coming year (a) the lethality of the virus continues to wane, (b) the world economy continues to reopen, (c) corporate earnings continue to advance, (d) the Federal Reserve begins draining excess liquidity from the banking system, with some resultant increase in interest rates, (e) inflation subsides somewhat, (f) barring some other exogenous variable - which we can never really know - equity values continue to advance, though at something less (and probably a lot less) than the blazing pace at which they've been soaring since the market trough of March 2020.” [12]
• “If you are following good investing practices, it's important not to get wrapped up in the day-to-day fluctuations, because you could become too emotionally invested and end up making a bad decision in the heat of the moment.  Stick to the long term game plan and you'll be better off.” [13]
• If you have any questions regarding your investment account, please feel free to reach out to us.  Keep the faith, friends.

[1] www.chaikinanalytics.com 

[2] www.stockcharts.com 

[3] www.sofi.com 

[4] www.investors.com 

[5] www.bankrate.com 

[6] www.marketwatch.com 

[7] www.ftportfolios.com 

[8] Marketimer newsletter, www.bobbrinker.com 1/2022

[9] www.invesco.com 

[10] www.chaikinanalytics.com 1/21/22

[11] www.investors.com 

[12] www.nickmurraynewsletters.com  1/22

[13] www.bankrate.com