Vigilare Wealth Management 2021 Q4 Commentary
2021 was characterized by many fits and starts due to nations and individuals navigating this unpredictable covid-19 pandemic along with the diversity of policy and behavioral responses. Successive covid waves swept through global regions starting with Delta early in the year and then Omicron to finish the year. The equity markets were resilient through most of the year, in our view, because of the ongoing economic recovery and then additionally fueled by the Federal Reserve accommodation (please refer to prior commentaries for more elaboration). The stock market indices ended the year higher although the bulk of the returns were concentrated in the largest and mostly U.S. based companies. Bond markets did not fare well at all finishing the year negative.
We entered the 4th quarter optimistic in the market rebounding (it did), but also spent much of the prior commentary discussing emerging inflation pressures and Federal Reserve policy response. Fast forward to the time of this writing and headline CPI (most common government inflation measure) clocked in at over 7% which is the highest reading going back to 1982 (E.T. and Tootsie were leading the movie box office at that time). These elevated inflationary pressures have not gone unnoticed by Fed officials. The Fed has now adjusted their policy actions to address this emerging inflation dilemma. We anticipate a much more choppy and volatile investment environment in 2022. Here are some of the headline risks that may likely increase volatility in 2022:
- Fed policy error, I.E., moving too quickly to reverse pandemic easing policies
- Persistent inflation and rising interest rates
- More Covid waves and mutations (please no!!)
- High Valuations for markets, especially U.S.
- Election Cycle year (markets do not like this uncertainty)
- Geopolitical, China/Russia
We highlight these risks because we are concerned that they have a higher probability of an impact on the markets today, however there is also much underlying strength in the economy and in corporations’ earnings potential especially as these risks get priced in and/or are reduced. We will be communicating tactics and adjustments in future writings and communications as the circumstances evolve.
We hope everyone is healthy and safe. Happy New Year.
Thank you for your trust.
The Vigilare Wealth Management Team
IMPORTANT DISCLOSURES Vigilare Wealth Management is an SEC registered investment adviser. The information presented here is not specific to any individual’s personal circumstances. This is not an offer to buy or sell securities. No investment process is free of risk and there is no guarantee that the investment process described herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.