February 2022 Newsletter to ClientsSubmitted by Moneywatch Advisors on February 8th, 2022
Enjoy this month’s edition that features a review of January’s volatile stock market and a description of a new mutual fund in our lineup.
An old joke asks, “Why did God create economists? To make weather forecasters look good.” After our “epic” ice storm that wasn’t in early February, this takes on extra meaning in Kentucky. And after January’s wild start to the investing year, prognosticators are trying to anticipate the direction of the stock market for the rest of 2022. As you know, we aren’t going to predict that, but we will say there are plenty of signs that point toward continuing volatility, at least in the near term. Here are a few:
The S&P 500 consisting of large, U.S. companies, was down over 5% for January. The last two days of the month, however, were up 4.4%. Incidentally, the month’s performance was the worst January since 2009 and, since 1950, every down January was followed by more volatility and an average return of -2.1% for the year. The second fact means almost nothing, of course, but there have been reasons January was both up and down;
Facebook, now Meta, released its earnings recently and the entire value of the company dropped $230 Billion! It lost over 26% of its value IN ONE DAY. It’s been noted as the largest destruction of one company’s market capitalization – it’s value – ever recorded. Their news that they’re losing subscribers and money helped drag down the entire S&P 500 that day by 2.4% - the worst one-day drop since February of 2021;
Amazon, on the very next day, announced a gain in net income for 2021 but also announced its plan to raise the price of its Prime membership almost 17%, from $119 to $139. The market interpreted their news to mean Amazon can handle inflation just fine through their ability to raise prices. Amazon’s shares rose over 5% that day and helped drag the S&P 500 higher that day too;
Two behemoth companies with news the polar opposite of each other pushed and pulled the market in opposite directions on subsequent days;
Then the January jobs report indicated further national job growth and enhanced labor participation rates - both good news. Many think these data will encourage the Federal Reserve to raise short-term interest rates as soon as their March meeting. In fact, many believe the stock and bond markets have already priced in 5 interest rate hikes in 2022. Liz Ann Sonders, chief investment strategist for Charles Schwab said “…the pandemic, the Fed monetary tightening in the face of inflation, and the extremely high valuations of U.S. stocks after years of increases have all contributed to the market’s current vulnerability.”
Over the short term, we will not attempt to predict the direction of the stock and bond markets. Over the long term, we believe the stock market is a great creator of wealth and also a valuable investment during inflationary times. As always, we are focused on ensuring each client is invested with a strategy that is right for their, specific situation. If you require a firm prediction for the year, we are confident it will be hot in July.
Fund change: The fund we were using in many portfolios to fill the U.S. large company value stock space was sold recently. BMO Low Volatility Equity Fund – tickers of MLVEX and BLVAX – was sold to Columbia Threadneedle and the new fund is titled Columbia Integrated Large Cap Value and has the ticker symbol of ILBVX or ILVEX. We are in the process of selling this new fund because it doesn’t have the same strategy of the BMO fund. In its place, we are purchasing Madison Dividend Income Fund (BHBFX). We were aware of this change for several months so spent a considerable amount of time evaluating funds
Thank you for your continuing confidence.