Quarterly Market Commentary
CFG Wealth Management – Special Market Commentary – January 2022
2022 has gotten off to a rocky start for stock market investors, with major market indices seeing sharp declines since hitting all-time highs on January 3rd. Markets began hitting the sell button the following day when the minutes from the December Fed meeting were released, which included a more aggressive tone on monetary policy and inflation than stocks were pricing in. In addition, the potential for armed conflict in Ukraine, which has escalated in recent weeks, added to the underlying worry and further unsettled market sentiment. The Dow Jones Industrial Average and S&P 500 are on pace for their worst month since March 2020, when the market fell into turmoil amid the pandemic. The NASDAQ, meanwhile, is headed for its biggest one-month loss since October 2008.
As a result of the recent sell off, we have seen some indexes enter correction territory, which is typically defined as a decline of 10% or more from previous highs. While market volatility is unsettling, it is historically not unusual. Since 1980, markets have averaged four 5% pullbacks per year, and the S&P 500 Index has averaged at least a 10% pullback about once per year. In short, market corrections are normal, and often needed to wash out excesses that may exist and reset the baseline for future gains. Also, corrections tend to coincide with money moving out of overbought sectors and into out of favor sectors, which can be healthy for markets overall and favors diversified asset allocation strategies like ours. It’s been almost two years since the last 10% pullback in the S&P 500, so one could argue that we were due for what we’ve experienced this month, but as with all past corrections, you never know when they’re going to come and how much markets may continue to rise before one inevitably comes.
Looking forward, we believe volatility will likely remain elevated for a while as markets find their footing, but by no means do we feel this is the beginnings of a bear market. While we are most certainly entering a monetary tightening cycle, the fundamental back drop for the economy is still on solid footing and we expect corporate earnings to continue to be strong. We also think the rotation from Growth to Value will likely continue and we will be maintaining our over-weight tilt to Value stocks on those views. Companies with strong earnings and consistent cash flows tend to be rewarded during environments like this, and our focus on quality should help dampen some of the volatility. Stocks have risen during monetary tightening cycles in the past, and we see no reason why it would be different this time. Although as we communicated previously, equity returns will likely be more muted and difficult to achieve this year. As always, we will be doing our best to navigate the environment and position our portfolios in ways we think have the best chance for success.
While correction events are never pleasant, and we understand anyone who may be concerned right now, but now is not the time for panic. Rather, these are the times to stay focused on your long-term plan. As recoveries from corrections have taken four months on average, staying invested and timely rebalancing to parts of the market that have been hardest hit can be additive to portfolios, and leave investors better off in the long run. Speaking of rebalancing, in our last commentary to you we notified you that we would be rebalancing portfolios toward the end of January. In light of the market events and volatility this month, we’ve decided that it would be in our client’s best interest to delay initiating rebalancing in our portfolios until the markets have settled. We will now be targeting late February or early March to rebalance, although we will be watching the markets closely and could rebalance portfolios sooner if we find the time and opportunity to be right for your portfolios. We will notify you in a separate communication when those trades take place.
This has been a difficult month for investors for sure, and your monthly account statement values are expected to reflect that. We want to emphasize that if you have individual concerns or questions, we are always available to you to address those concerns and review your investment results and strategy moving forward. Whatever your individual situation is, rest assured that we are monitoring your portfolio closely and we will contact you if we feel any short-term changes are necessary. However, we remain confident in the current fundamental economic environment and growth forecasts and feel strongly that the market will work through this correction as it has so many times in the past. If you would like to discuss your accounts or any concerns you may have, please don’t hesitate to call us at (858) 550-3960 or (800) 884-5121 or contact us via email and we’ll get back to you right away.
Graydon Coghlan, CRPC – President/CEO
Registered Representative, Securities America, Inc.
Financial Advisor, Securities America Advisors, Inc.
CA Insurance License #0B31440
4370 La Jolla Village Drive, Suite 630
San Diego, CA 92122
(858) 550-3960 (phone)
(858) 550-3969 (fax)
Securities offered through Securities America Inc., a Registered Broker/Dealer Member FINRA/SIPC, Advisory services offered through Securities America Advisors Inc., an SEC Registered Investment Advisor, CFG Wealth Management and Securities America are not affiliated. Trading instructions sent via e-mail may not be honored. Please contact my office at (858) 550-3960 or Securities America, Inc. at (800) 747-6111 for all buy/sell orders. Please be advised that communications regarding trades in your account are for informational purposes only. You should continue to rely on confirmations and statements received from the custodian(s) of your assets. The text of this communication is confidential, and use by any person who is not the intended recipient is prohibited. Any person who receives this communication in error is requested to immediately destroy the text of this communication without copying or further dissemination. Your cooperation is appreciated. 01/22