Stocks have gotten off to a tough start in 2022. Why has the market pulled back and what might we see going forward?
We think the most important thing to remember is that periodic stock market volatility is entirely normal. Historically, the S&P 500 Index has averaged three pullbacks of 5% or more per year and one correction of more than 10% annually. Investors have grown accustomed to steady, consistent gains over the past couple of years which makes the current bumpy ride feel more uncomfortable. After only a single 5% pullback in 2021, we have been anticipating more volatility in 2022.
But even though volatility is normal, it is usually responding to something. Stubbornly high inflation, higher interest rates, and less support from the Federal Reserve are getting most of the blame, and probably deservedly so. Supply chain disruptions and some economic weakness because of the Omicron variant of COVID-19 are also playing a role. Additionally, market history tells us that stock market action in mid-term election years (which we’re in now) are historically quite volatile and most gains tend to happen in the back half of the year.
While we expect inflation to start improving soon and the impact of the virus to fade, the Fed has shifted its priority to controlling inflation. That signal of less support for the economy has made markets nervous. The good news is that the Fed is prioritizing inflation because the economy overall is in pretty good shape. Since that’s usually true when the Fed starts to hike interest rates, the S&P 500 historically has had solid performance (on average) in the year before and after the first-rate hike of an economic expansion.
Importantly, we still remain confident corporate America has enough earnings power left in the tank to support stock market gains. There are challenges facing corporate America this earnings season, including supply chain disruptions, wage and other cost pressures, and the COVID-19 Omicron variant. But while it is still early in earnings season, corporate earnings are growing strongly and companies are mostly optimistic about the future.
This pullback in the S&P 500 could easily go to 10% or even a little more. Remember, the average maximum drawdown in a positive year for stocks is 11%. But based on the still solid overall economic and earnings backdrop, our expectation is that the inflation clouds will soon start to clear. And with the stock market’s historically solid track record early in Fed rate hike cycles, we wouldn’t expect this pullback to go much further.
Here’s to a successful and healthy 2022.
Please contact me if you have any questions.
Sincerely,
Scott A. Shaw, CFA®, CFP®
CIO | Chief Investment Officer
www.BASHcapital.com
40 E Montgomery Ave, 4th Floor Ardmore, PA 19003
Office Phone: 215-982-2743
Fax Number: 215-827-5814
Email: sshaw@bashcapital.com
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of April 1, 2021.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
With the New Year comes new beginnings, new goals, new challenges, new friendships, and new opportunities. 2021 was an incredible year for the economy and investors, but to us the future remains bright for 2022 and beyond.
Let’s take a look back at 2021. Our economy is on track for over 5% growth for the year, which could end up being the best year for economic growth since the early 1980s. The dual tailwinds of fiscal stimulus and monetary policy helped steady the economy as it dealt with historic supply shortages, record inflation, employment shortages, and the pandemic. Looking to 2022, as the U.S. economy moves to more mid-cycle, 4.0-4.5% gross domestic product (GDP) growth is quite likely. This isn’t as strong as 2021, but would still be much better than recent years.
One of the key themes we see in 2022 is for the economy to be ready for a handoff, moving away from government spending and monetary policy, back to a greater emphasis on the individual choices of households and businesses. We see this passing of the baton in 2022 with consumers, productivity, small businesses, and capital investments all playing a part in the next stage of economic growth. Inflationary pressures may steadily decrease over the next year as conditions improve, but how smoothly that handoff is executed may determine the course of the recovery.
The stock bull market continued last year with very solid gains. In fact, the S&P 500 Index had the second most new all-time highs in any year ever in 2021. It was an incredibly consistent move higher as well, with all 12 months of 2021 making a new all-time high along the way. Strong earnings growth and an adaptive corporate America helped contribute to the healthy stocks gains. This economic cycle likely has at least a few more years left, increasing the chances of another good year for stocks in 2022.
The battle against COVID-19 is far from over, but we continue to see light at the end of the tunnel. The Omicron variant is the new dominant strain, but hospitalizations and deaths are fortunately still well-off previous peaks from earlier strains, even as new cases soar. Cases of the flu are beginning to show up, something that we haven’t seen since early 2020, and yet another clue COVID-19’s grip on us could be loosening.
Lastly, 2022 is a mid-term year, which means Washington talk will dominate the news cycle. Please remember to separate your political views from your investments, as the stock market cares more about the future of the economy than anything else. Though 2021 was an easy year for investors, 2022 will probably be harder. Mid-term years historically have been quite volatile for stocks. It is always important to have a plan in place before the storm potentially comes. The time to plan is before, not during, the storm.
Here’s to a successful and healthy 2022, and please contact me if you have any questions.
Sincerely,
Scott A. Shaw, CFA®, CFP®
CIO | Chief Investment Officer
www.BASHcapital.com
40 E Montgomery Ave, 4th Floor Ardmore, PA 19003
Office Phone: 215-982-2743
Fax Number: 215-827-5814
Email: sshaw@bashcapital.com
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of April 1, 2021.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Dear Bennett,
Stocks have gotten off to a very rocky start in 2022, with the potential for Federal Reserve rate hikes coming and the geopolitical worries over Russia and Ukraine only adding to the uncertainty. We don’t want to minimize the impact of that major geopolitical event, but there is some positive news out there, even though it might not feel like it.
Starting with Russia and Ukraine, the truth is the U.S. economy and the overall stock market likely won’t be impacted much by the recent conflict. In fact, stocks took most previous major geopolitical events in stride. Looking at more than 20 geopolitical events such as the attack on Pearl Harbor and 9/11, the S&P 500 Index fell only about 5% on average.
With anxiety running high, here are some important numbers that should help calm some nerves.
The good news is corporate America continues to see strong earnings. S&P 500 earnings per share in the fourth quarter are tracking to a 31% year-over-year increase (FactSet), roughly 10 percentage points above the consensus estimate when earnings season began. The top-line growth was extremely strong as well, with revenue growth up close to 15%. Lastly, profit margins saw very little compression, as companies with pricing power have been able to pass along higher costs and largely preserve those high margins, which are well above pre-pandemic levels.
Finally, COVID-19 trends are very positive as well, with new cases down more than 90% from the January peak (John Hopkins University). Many states are lifting mask mandates and a strong reopening will likely take place over the coming months and into the summer. Backlogs and bottlenecks continue to slowly trend the right way, and the labor force remains quite healthy as well.
The concerns and uncertainties are real, and the road ahead could be filled with more bumps and bruises. However, with U.S. consumers and businesses in solid shape, we think the U.S. economy could grow as much as 4% this year, much better than the pace of the last recovery.
They say it is always darkest before the dawn, and long-term investors should keep this in mind as better times are likely coming in 2022. Please contact me if you have any questions.
Sincerely,
Scott A. Shaw, CFA®, CFP®
CIO | Chief Investment Officer
40 E Montgomery Ave, 4th Floor Ardmore, PA 19003
Office Phone: 215-982-2743
Fax Number: 215-827-5814
Email: sshaw@bashcapital.com
Scott A. Shaw, CFA®, CFP®
CIO | Chief Investment Officer
40 E Montgomery Ave, 4th Floor Ardmore, PA 19003
Office Phone: 215-982-2743
Fax Number: 215-827-5814
Email: sshaw@bashcapital.com
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of February 24, 2022.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
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Dear Investor,
“The real key to making money in stocks is not to get scared out of them.” Peter Lynch
They say April showers bring May flowers. Well, after a lot of showers and storms over the past year, flowers are starting to bloom and things are looking a lot better.
Last month marked the one-year anniversary of the bottom of the vicious pandemic-induced bear market for the S&P 500 Index. Despite the turmoil of the past year, investors who did not get scared out of stocks have had a lot to smile about. The S&P 500 completed its greatest one-year rally from a bear market low in history, gaining nearly 75% as the arrival of vaccines facilitated the reopening of the economy.
While the first year of a new bull market can provide a relatively easy investing environment, year two of that bull market has a knack for challenging investors. That second year has still historically provided solid returns for stock investors, yet often comes with greater volatility. In fact, stocks have never been lower during the second year of a new bull market. But gains over the next year may not come as easily considering the average pullback in that second year following a 30% bear market has been more than 10%.
However, there continues to be plenty of reasons to remain positive on the investment landscape going forward. It may be early to declare victory against COVID-19, but significant progress in that battle has been made this year, even in the face of new variants. According to the Centers for Disease Control and Prevention (CDC), half of the U.S. population above the age of 65 has been fully vaccinated, while a third of the total population has received at least one dose of the vaccine. We expect this trend to accelerate in the coming weeks, as many millions more Americans become eligible.
The progress against the virus combined with historic stimulus measures have certainly helped the U.S. economy emerge from the shadow of the pandemic. Roughly $1.9 trillion in pandemic relief was signed into law on March 11, including additional direct payments to households to help provide a bridge to the end of the pandemic. A $3 trillion infrastructure bill could be coming later this year, which would represent yet another shot in the arm to the economy.
Sir John Templeton once said, “People who think they know all the answers probably don’t even know the questions.” We don’t have all the answers, but we do know that the battle with COVID-19 is likely winding down, the U.S. economy could see its best year of growth since 1951, and we should continue to see benefits from record monetary and fiscal stimulus. These developments are likely to provide the ingredients for solid stock market gains through the remainder of the year.
Please contact me if you have any questions.
Sincerely,
Scott A. Shaw, CFA®, CFP®
CIO | Chief Investment Officer
www.BASHcapital.com
40 E Montgomery Ave, 4th Floor Ardmore, PA 19003
Office Phone: 215-982-2743
Fax Number: 215-827-5814
Email: sshaw@bashcapital.com
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of April 1, 2021.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Dear Valued Investor:
As the calendar has turned to May, the popular “Sell in May and Go Away” stock market cliché is getting a lot of airtime. This is the idea that the stock market tends to be weakest between May and October (and strongest between November and April). Stocks have done so well recently that preparing for a pause in the rally makes sense. A lot of good news is priced into stocks. Worries about the Federal Reserve tightening its monetary policy may intensify this summer as inflation picks up, potentially pushing interest rates higher. Tax increases are probably coming in 2022, and deficit spending continues largely unabated.
Investors have not been well served recently by following the “Sell in May” pattern and avoiding stocks from May through October. Over the past decade, during that six-month period the S&P 500 Index was higher eight out of 10 times, with an average gain of 3.8%. Going back to 1950, even though the May-through-October period has been the weakest, stocks have gained 1.7% on average and have been higher 65% of the time—hardly a disaster worth avoiding.
The U.S. economy continues to storm back from the pandemic lockdown-driven recession. After growing at a solid 6.4% annualized pace during the first quarter of 2021, U.S. gross domestic product (GDP) is just a small fraction away from recovering all of its lost output from 2020. Economists’ consensus forecast for U.S. economic growth of 8.1% in the second quarter of 2021 (source: Bloomberg) may be too low given the additional progress toward a fully reopened economy and continued steady vaccine distribution. With more fiscal stimulus likely coming soon, GDP growth in 2021 may be the strongest in four decades, hardly supportive of a bearish view. Nearly 1 million jobs were created in March, and April’s number due out on May 7 could be even bigger.
First-quarter earnings season has been a record setter. The percentage of S&P 500 companies beating earnings per share targets (88%) and upside to revenue targets (over 4%) are both the highest that earnings data aggregator FactSet has ever recorded. The year-over-year increase in S&P 500 Index earnings will likely double—yes double—the 24% estimate as of April 1—one of the biggest earnings upside surprises ever, and frankly hard to believe!
The strong earnings growth has allowed stocks to grow into their valuations. In fact, stock valuations remain quite reasonable compared with bonds given still-low interest rates, suggesting a “Sell in May” decision based on elevated stock valuations may be a mistake. This fundamental backdrop suggests any market selloffs may be shallow and short-lived, and therefore difficult to time.
Volatility is like a toll investors pay on the road to solid long-term investment returns. In general, we think investors should pay that toll and favor equities over bonds in their portfolios. For those with extra cash on the sidelines, we would look to buy on weakness given the favorable fundamental backdrop. But for investors with extra risk in portfolios, now might be a good time to consider taking a little bit off the table.
Please contact me if you have any questions.
Sincerely,
Scott A. Shaw, CFA®, CFP®
CIO | Chief Investment Officer
www.BASHcapital.com
40 E Montgomery Ave, 4th Floor Ardmore, PA 19003
Office Phone: 215-982-2743
Fax Number: 215-827-5814
Email: sshaw@bashcapital.com
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of April 1, 2021.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Dear Scott,
As we move into June, a path to normalcy is coming quickly with stadiums allowing full capacity, restaurants filling up, and summer vacations in full swing. Meanwhile, the U.S. economy continues to recover remarkably quickly and the stock market is near all-time highs. Although there are many positives, a lot of this good news could very well be priced into stocks. Companies are having trouble finding workers, while higher inflation has many wondering whether this means the Federal Reserve is behind the curve and will need to quickly tighten monetary policy to stave off inflation. Add to that higher taxes and more deficit spending are likely on the way, causing a lot of things for investors to worry about.
The U.S. economy continues to open up faster than even the most optimistic economists expected at the start of the year. Much of this is due to COVID-19 cases hitting new lows and restrictions being lifted across our country. The U.S. economy has likely already recovered all of its lost output from 2020, with U.S. gross domestic product (GDP) expected to grow close to 10% in the second quarter of 2021 (source: Bloomberg). As of now, this year is on pace to be the best year for GDP growth since the early 1980s, bolstered by fiscal and monetary stimulus.
First-quarter earnings season is over, and it was simply amazing. The percentage of S&P 500 companies beating earnings per share targets (87%) and upside to revenue growth (over 4 percentage points) were both the highest that earnings data aggregator FactSet has ever recorded. The 52% year-over-year increase in S&P 500 Index earnings per share came in more than double the 24% estimate as of April 1. Lastly, overall earnings estimates for 2021 have increased 12% this year, right in line with the return from equities.
Strong economic growth and massive stimulus has brought with it major worries over the economy potentially overheating. The Consumer Price Index (CPI) for April sparked much of the worries, with the core reading (excluding volatile food and energy prices) rising 0.8% month over month, the hottest since the early 1980s (U.S. Bureau of Labor Statistics). You are likely seeing higher prices when you go to the grocery store or fill up your car, making this a real concern. Problems filling jobs and supply chain issues are adding to the inflation pressures on top of the pent-up demand coming through as the economy fully reopens.
Although these concerns are real, longer-term inflation should come back to trend. Technology, globalization, the Amazon effect, increased productivity and efficiency, automation, and high debt (which puts downward pressure on inflation) are among the major structural forces that have put a lid on inflation the past decade plus—and will likely continue to do so.
The next several months are historically the most volatile of the year for investors and I wouldn’t be surprised to see that happen once again. In general, investors should continue to favor stocks over bonds in their portfolios, as appropriate. And should there be any downside volatility, you may want to consider using the weakness to buy stocks at cheaper prices given the still favorable economic backdrop and strong company fundamentals.
Most importantly, go out there and plan a fun vacation this summer!
Please contact me if you have any questions.
Sincerely,
Scott A. Shaw, CFA®, CFP®
CIO | Chief Investment Officer
www.BASHcapital.com
40 E Montgomery Ave, 4th Floor Ardmore, PA 19003
Office Phone: 215-982-2743
Fax Number: 215-827-5814
Email: sshaw@bashcapital.com
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of April 1, 2021.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Dear Investor,
In the first half of 2021, the U.S. economy powered forward faster than nearly anyone had expected. Speed can be exhilarating, but it can also be dangerous. In our view, the overall economic picture remains sound and will likely support strong profit growth and additional stock market gains. But the pace of reopening also creates new hazards: supply chains are stressed, some labor shortages have emerged, inflation is heating up—at least temporarily—and asset prices look expensive compared to historical figures.
Markets are always forward looking, and in LPL Research’s Midyear Outlook 2021: Picking Up Speed (Due out on July 15), we help you keep your eyes on the road ahead. The next stretch may be a fast one and will have its share of opportunities, but also new risks to navigate. As always, sound financial advice can be as important as ever to help steer you through the environment and put in the miles toward meeting your long-term financial goals.
The U.S. economy has surprised nearly everyone to the upside as it speeds along—thanks to vaccinations, reopenings, and record stimulus. The growth rate of the U.S. economy may have peaked in the second quarter of 2021, but there is still plenty of momentum left to extend above-average growth into 2022. Despite the natural challenges of ramping back up, the recovery still seems capable of providing upside surprises, and in the end, we could have our best year of real GDP growth since the early 1980s.
Although higher taxes and more regulation are likely coming, an extraordinary amount of support from the Federal Reserve (Fed) and more than $5 trillion in fiscal stimulus so far (with more coming) should continue to support the stock market and economy for the rest of 2021.
Speaking of the stock market, we expect the robust economic recovery to continue to drive strong earnings growth and support further gains for stocks. Don’t forget though, after a more than 90% gain off the March 23, 2020, lows for the S&P 500 Index, some choppy action during the historically challenging year two of a bull market would be perfectly normal.
Turning to bonds, it has been a historically tough year, as yields surged earlier this year. Should the economy continue to improve, the door would be open for stocks to continue to do quite well, but we will always appreciate bonds’ important role in a portfolio as a source of income and as a potential diversifier during equity declines.
Midyear Outlook 2021: Picking Up Speed was designed to help you navigate a year in which economic conditions may continue to improve. Understanding the road immediately ahead is essential for navigating its twists and turns, but it will be thoughtful planning and sound financial advice that will keep us on the journey.
The first half has been a good one for investors. While the road ahead may bring more gains in the second half, it might be a bumpy ride. Please contact me if you have any questions.
Sincerely,
Scott A. Shaw, CFA®, CFP®
CIO | Chief Investment Officer
www.BASHcapital.com
40 E Montgomery Ave, 4th Floor Ardmore, PA 19003
Office Phone: 215-982-2743
Fax Number: 215-827-5814
Email: sshaw@bashcapital.com
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of April 1, 2021.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Six months and counting. That is the current monthly winning streak for the S&P 500 Index. To take that a step further, this key equity benchmark has posted gains in 13 of the last 16 months—dating back to the March 2020 low. With stocks nearly at a double from those lows, it has indeed been hard to quibble about what stocks have provided recently.
The primary upside equity catalyst in July appeared to be another healthy earnings season. So far, with over 60% of S&P 500 companies reporting results, 88% have beaten their earnings estimates. This would be the highest ever recorded if it stands, according to FactSet—and well above the 75% five-year average. There’s more. Add in the steady recent decline in interest rates, which help with equity valuation calculations, and you get an equity market on a hot streak.
Meanwhile, the Federal Reserve Bank (Fed) has, so far, remained relatively quiet about its plans to roll back its historic accommodation. Its recent two-day meeting closed with little fan-fare and negligible new information. Monetary policymakers are still discussing a plan to taper bond purchases that we expect to see uncovered in the fall.
Second-quarter U.S. GDP was reported in the last week of July. Although the 6.5% reading (quarter-over-quarter annualized) was below the Bloomberg consensus forecast of 8.4%, consumer spending exceeded expectations. Moreover, inventories declined at their second-worst rate in 12 years, setting up a possible boost in coming quarters when those inventories are replenished. While the post-COVID economic rebound has certainly been robust, supply chain issues continue to take some edge off growth.
Although we booked a lot of good news in recent months, we have now come upon a typically volatile period for stocks. The months of August and September have historically been a bit choppy as trading volume tends to dissipate and it may take less selling to move the major averages lower. That could be something investors will want to keep an eye on now that August has arrived. Also, consider that the second year of a bull market has historically brought more ups and downs.
Looking ahead, our stock market outlook remains positive as fundamental drivers have been robust, though we acknowledge that valuations are elevated. The latter point puts us on the lookout for a pullback that we believe is overdue, given the S&P 500 has not fallen as much as 5% since October 2020. The typical trading year brings several 5%-plus pullbacks and potentially one correction of the 10% variety. Should we get one, we believe investors may want to step in to do some quick bargain-hunting, as we would not expect a drawdown to last uncomfortably long. That said, stocks have come a long way and investors may want to double-check their allocations against their risk tolerance. Getting too far out over one’s skis is never a good idea.
Please contact me if you have any questions.
Sincerely,
Scott A. Shaw, CFA®, CFP®
CIO | Chief Investment Officer
www.BASHcapital.com
40 E Montgomery Ave, 4th Floor Ardmore, PA 19003
Office Phone: 215-982-2743
Fax Number: 215-827-5814
Email: sshaw@bashcapital.com
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of April 1, 2021.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
The bull market continues, with the S&P 500 Index now up seven months in a row. Stocks have impressively gained 20% year-to-date, with the S&P 500 making 53 new all-time highs before the end of August—another new record. All of this has happened with very little volatility, as the S&P 500 hasn’t had so much as a 5% pullback since last October.
We came into this year expecting a stronger economy and robust stock market, but even we are surprised at just how resilient things have been. Earnings help drive long-term stock gains, and what we’ve seen from earnings so far in 2021 is a big reason stock returns have been so impressive. A record-breaking second quarter earnings season saw more than 86% of S&P 500 companies beat their consensus earnings estimates, the highest ever recorded and well above the 75% five-year average. S&P 500 earnings are now 26% above pre-COVID-19 levels based on the 2021 consensus estimate, helping to justify stocks at current levels.
Another reason stocks have been so strong is Federal Reserve (Fed) monetary policies. The Fed is expected to begin to taper its monthly bond purchases (currently $120 billion), but it appears to be committed to leaving rates low for the foreseeable future. The Fed likely won’t consider increasing rates until the employment picture improves significantly, and it will be leery of quickly removing stimulus after the deepest recession of our lifetimes, especially if COVID-19 is still influencing behavior. We believe this historic Fed accommodation will continue to be a tailwind for equities.
Worries are adding up though, even as stocks hit new highs. Supply chain disruptions are contributing to higher input prices in select industries. There are concerns about the future of Afghanistan. The highly contagious Delta variant has nearly 100,000 Americans nationwide currently hospitalized. And, China’s regulatory crackdowns could lead to further bouts of volatility. As a result, domestic consumer confidence has taken a hit recently, which could lead to a weaker-than-expected third quarter for the U.S. economy. However, if Delta concerns ease, any consumption that is lost in the third quarter will likely be made up in the fourth quarter.
Additionally, late summer through early fall has been a seasonally volatile period for stocks historically. Although stocks shook off the traditionally weak August, September is upon us—and this month is historically the worst of the year for stock returns. Not to mention October is historically the most volatile month of the year for stocks. Also, the second year of a bull market has historically seen stocks pull back after big gains in year one.
Looking ahead to the final four months of the year, we remain positive on stocks and the U.S. economy. However, stocks haven’t pulled back 5% for nearly a year, and we believe investors should be on alert for potential seasonal volatility, aiming to use it as an opportunity when stocks go on sale. They say the stock market is the only place where everyone runs out of the store screaming when things go on sale. It’s good to have a plan in place when that sale comes along.
Please contact me if you have any questions.
Sincerely,
Scott A. Shaw, CFA®, CFP®
CIO | Chief Investment Officer
www.BASHcapital.com
40 E Montgomery Ave, 4th Floor Ardmore, PA 19003
Office Phone: 215-982-2743
Fax Number: 215-827-5814
Email: sshaw@bashcapital.com
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of April 1, 2021.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Dear Client,
One constant in life is change. During the past year and a half, we have experienced more change than any of us bargained for. Change is disruptive—but also brings opportunities. For investors right now, there is no shortage of changes to think about, but those changes may set the stage for the next leg higher for this powerful and still relatively young bull market.
The trajectory of the U.S. economy has changed recently because of the Delta variant of COVID-19 and related disruptions to companies’ supply chains. According to the Federal Reserve Bank of Atlanta’s estimate, the growth rate of gross domestic product (GDP) for the third quarter is tracking to just 1%, down from 6% two months ago. Rather than the start of a new downtrend, however, we expect growth to pick up through year-end as further progress is made beating COVID-19.
The stock market changed paths last month (consistent with historical seasonal patterns) as the S&P 500 Index experienced its first 5% pullback since October 2020. The good news, however, is that the fourth quarter has historically been the best for stocks with an average gain of 4%. As we look to next year, if the U.S. economy produces above-average growth as we expect, double-digit gains for stocks would be a reasonable expectation.
The Federal Reserve (Fed) may experience a big change early next year. Fed Chair Jerome Powell’s term is up in February and his reappointment by President Biden is not assured. Mr. Powell’s progressive critics don’t believe he is tough enough on banks. The Fed is also about to start tapering its massive $120 billion per month bond-buying program before embarking on an interest rate−hiking campaign. That’s a lot of change.
One thing we hope doesn’t change is that the U.S. government keeps paying its bills. The debt ceiling, which has been raised 78 times since 1960, will need to be raised by October 18, according to Treasury Secretary Janet Yellen—or the country could (inconceivably) default on its debt. Congress will figure out a way to get this done but the political game of chicken could cause some jitters for markets if not resolved quickly.
Democratic policymakers are trying to effect a lot of change with the nearly $5 trillion in proposed spending on infrastructure and social programs. The two proposals will likely be scaled back closer to a combined $3 trillion to secure support from moderate Democrats (the $1.2 trillion hard infrastructure package has bipartisan support). This spending will come with tax increases to help pay for it, but that won’t stop the federal debt from piling up. Thankfully that debt is cheap to service with interest rates still low.
That’s a lot of change. These changes create uncertainty, but markets may have already priced them in. The outlook for the U.S. economy still looks bright. Corporate profits are growing strongly. Low interest rates are supportive, and while inflation is still elevated, the worst of it may be behind us.
Please contact me if you have any questions.
Sincerely,
Scott A. Shaw, CFA®, CFP®
CIO | Chief Investment Officer
www.BASHcapital.com
40 E Montgomery Ave, 4th Floor Ardmore, PA 19003
Office Phone: 215-982-2743
Fax Number: 215-827-5814
Email: sshaw@bashcapital.com
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of April 1, 2021.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Dear Investor,
The past year and a half have tested all of us, but overall, the economy continues to strengthen, COVID-19 trends are greatly improving, and this still relatively young bull market is alive and well. As the leaves turn colors and begin to fall to the ground, there are many reasons to be thankful.
The economy slowed considerably in the third quarter (as the growth rate of gross domestic product [GDP] slowed to 2.0% from 6.7% in the second quarter), well below the 10% that was expected back in early June. The good news is—this likely isn’t the start of a new trend. The COVID-19 Delta variant slowed the economy considerably in the third quarter, but growth is expected to pick up in the next few quarters. Big purchases were likely pushed back a few months, which helps the growth outlook for the fourth quarter. Additionally, consumer balance sheets remain very healthy, with trillions of dollars in savings and money market accounts. The consumer, which makes up about two-thirds of the economy, is in very good shape heading into 2022.
Supply chain disruptions are being felt all across our country. Goods are taking longer to get to us and costing more than they did in the past. But over the past few weeks, we have seen some signs that the worst of the supply issues may be ending. Although these issues lasted longer than most expected, the bottlenecks will continue to work their way out of the system over the coming months and provide relief—something consumers are sure to appreciate.
Earnings drive long-term stock gains and continue to justify stocks at current levels. Third quarter S&P 500 Index earnings have been extremely strong once again, with more than 80% of companies beating estimates (FactSet) and earnings up nearly 40% from 2020 levels. Yes, many companies have been impacted by the recent COVID-19 Delta variant-induced economic slowdown and supply chain problems, but corporate America remains quite optimistic about the future.
The strong stock market performance this year is yet another thing to be thankful for. In fact, November has been historically the best month of the year for stocks, with the usually strong December right after that. Although some of the late seasonal gains could have been pulled forward by the 6% gain in October, the bull market is alive and well.
The loss of so many lives to COVID-19 is a tragedy beyond comprehension, but some recent trends show light at the end of the tunnel. Approved booster shots and vaccines for children will continue to help the economy reopen. Additionally, hospitalizations are down by more than half from their September peak, suggesting we are over the worst from the Delta worries. Another reason to be thankful indeed.
These last two months will go by quickly, as this time of year is always busy—and that’s a good thing because it means we are getting closer to normal. We’ve come a long way since early 2020 when COVID-19 first arrived on U.S. shores, so let’s not forget to take some time to remember how lucky we all are.
Please contact me if you have any questions.
Sincerely,
Scott A. Shaw, CFA®, CFP®
CIO | Chief Investment Officer
www.BASHcapital.com
40 E Montgomery Ave, 4th Floor Ardmore, PA 19003
Office Phone: 215-982-2743
Fax Number: 215-827-5814
Email: sshaw@bashcapital.com
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of April 1, 2021.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Dear Valued Investor:
Our resurgent economy grew at over a 6% pace in the first half of 2021 and is on track for over 5% growth for the year by the time 2021 draws to a close. During the early recovery, we had a hand up from stimulus and policy that saw us through a period of unique challenges. In 2022, the economy may be ready for a handoff, back to a greater emphasis on the individual choices of households and businesses. How smoothly that handoff is executed may determine the course of the recovery.
As the U.S. economy moves more to mid-cycle, our forecast is 4.0–4.5% gross domestic product (GDP) growth in 2022. Fiscal and monetary policies played big roles in the economic recovery in 2021, but we see the baton being passed in 2022—from stimulus bridging a pandemic recovery to an economy growing firmly on its own, with consumers, productivity, small businesses, and capital investments all playing a part in the next stage of economic growth.
As the world moves past COVID-19 globally, Europe and Japan could be ripe for potentially better economic growth in 2022. Meanwhile, emerging market economies may disappoint as growth in China could be constrained by regulatory crackdowns.
2021 was the year nearly everything was in a shortage, and it translated to added inflationary pressures. Record numbers of ships waiting at ports, a lack of materials, unfilled job openings, higher commodity prices, and a myriad of supply chain disruptions have added to price pressures. We believe inflationary pressures may steadily decrease over the next year as conditions improve.
We expect solid economic and earnings growth in 2022 to help U.S. stocks deliver additional gains next year. If we are approaching— or are already in—the middle of an economic cycle with at least a few more years left, then we believe the chances of another good year for stocks in 2022 are quite high. We favor U.S. over developed international, tilt value over growth, and prefer cyclical sectors over defensives.
We expect interest rates to move modestly higher in 2022 based on near-term inflation expectations above historical trends and improving growth expectations once the impact of the COVID-19 Delta and Omicron variants recede. However, an aging global demographic that needs income, higher global debt levels, and rebalancing into fixed income from equities may keep interest rates from going much higher over the next year. Nonetheless, with starting yields still low by historical standards, bond returns are likely to be flat to the low-single digits in 2022.
LPL’s Outlook 2022: Passing the Baton provides insight and analysis for the next set of challenges the economy and markets may face. Happy holidays, and please contact me if you have any questions.
Sincerely,
Scott A. Shaw, CFA®, CFP®
CIO | Chief Investment Officer
www.BASHcapital.com
40 E Montgomery Ave, 4th Floor Ardmore, PA 19003
Office Phone: 215-982-2743
Fax Number: 215-827-5814
Email: sshaw@bashcapital.com
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of April 1, 2021.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Dear Investor,
We hope everyone enjoyed the Thanksgiving holiday with family and friends. While life has been challenging during the pandemic, we have a lot to be thankful for. At this time, we are especially grateful for COVID-19 vaccines and treatments that have helped us make so much progress tackling the pandemic. Unfortunately, the emergence of the new COVID-19 Omicron variant and the related market selloff in the days after Thanksgiving offered an unpleasant reminder that the pandemic is not over. The economy and financial markets remain somewhat reliant on the medical community and research developments.
Predicting the impact of the new variant is difficult, if not impossible, at this point. But there are logical reasons to expect limited economic impact, such as high vaccination rates, advances in treatments to reduce instances of severe disease, and various containment measures to limit spread (masks, distancing, etc.). Lockdowns are extremely unpopular, so we’re probably not headed there again, but we have a playbook that we can be reasonably confident will work.
However, key questions remain unanswered. Will existing vaccines be less effective against Omicron? Will symptoms be more severe than prior variants? Is this latest variant more transmissible than prior variants? So, while we think the drag on the economy will be modest, we simply won’t know for sure until we get more data over the next couple of weeks. Markets don’t like uncertainty, but we’ll have an extra helping of it on our plates along with Thanksgiving leftovers for a little bit.
Omicron does not change the fact that the U.S. economy is showing some strong momentum. A solid 1.7% increase in retail sales in October and a good start to the holiday shopping season point to strong consumer spending in the fourth quarter. The National Retail Federation sees holiday sales potentially increasing by 10% this year compared with 2020. Meanwhile, new filings for jobless claims for the week ending November 19 fell to a 50-year low, an impressive number even considering distortions from seasonal adjustments.
Businesses are doing their part to support financial markets in a tough operating environment. Profits from S&P 500 Index companies rose nearly 40% year over year in the third quarter and are expected to rise another 20% in the fourth quarter (source: FactSet) despite persistent supply chain disruptions, shortages of labor and materials, and related cost pressures. Net profit margins for S&P 500 companies in the third quarter remained near record-high second quarter levels, a remarkable feat given the circumstances. Finally, manufacturing surveys point to solid demand while offering signs that supply chain disruptions, and possibly inflation pressures, may be at or near a peak.
The path back to normal has been bumpier than anticipated, but we’ll get there. Omicron probably won’t derail the economic recovery or cause a stock market correction, but we just can’t know for sure. At least not yet. Stay tuned.
Here’s hoping you have a wonderful and healthy holiday season.
Please contact me with questions.
Sincerely,
Scott A. Shaw, CFA®, CFP®
CIO | Chief Investment Officer
www.BASHcapital.com
40 E Montgomery Ave, 4th Floor Ardmore, PA 19003
Office Phone: 215-982-2743
Fax Number: 215-827-5814
Email: sshaw@bashcapital.com
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of April 1, 2021.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
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