Welcome to the Year of the Tiger! Anyone else have a bit of cognitive dissonance going on? Inflation hit its highest calendar year pace since 1981, but real[1] Gross Domestic Product grew at a 6.9% annual rate. For the United States, a more typical level would be 2%. Job creation is up, unemployment is down, but we still have areas of the economy struggling. Elementary schoolers were bragging to each other about who got their vaccines first. Basically, 2021 was weird.
Stock markets apparently were fine with that, as you can see below – from left to right in that key, this shows the MSCI All-Country World Index (“All Country” includes emerging markets), the S&P 500, the Russell 2000 Index (US Mid- and Small-cap), and the Barclay’s US Aggregate Bond Index.
The first month of 2022 took away some of that gain, which hasn’t been much fun.
While we enjoy looking at graphs (hence the title of our blog series), we hasten to remind readers, as always, to focus on the long-term.
No company can grow faster than the overall economy forever. If it did, it would eventually gobble up all the other companies until it encompassed the entire economy by itself. So when the stock market freaked out that Peloton and Netflix both predict slower growth than earlier in the pandemic, I got a little confused. There are only so many people who want, have room for, and can afford a fancy exercise bike and the accompanying subscription. Netflix is a little easier to afford and of course doesn’t have a footprint to accommodate, but now that kids are back in school, do we really need to be able to watch three different things at once? I’m marrying a bike nut and binge watched the Great British Baking Show – there is no shade being thrown here. I just wonder how far ahead “the market” is thinking.
Given the reaction to news coming from the Federal Reserve Bank, not as far ahead as we might hope. Sometimes I worry that we all forget what the Fed is for. As our central bank, they exist to facilitate a functional, trustworthy financial system, particularly banks, which they regulate. Changing interest rates and buying bonds is part of the monetary policy function, which the Fed “conducts … to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy….” Note the distinct absence of any reference to the stock market in that statement.
The Fed does not answer to Wall Street and strives to be as independent from the rest of the US Government as possible. When monetary policy is unsettling for securities markets, the Fed is not supposed to care. I will double down on my prior statements – my bold market prediction for 2022 remains “ongoing volatility.” This brave pronouncement is slightly more outlandish than my public stance on ice cream, as being tasty.
Alphabet, parent of Google, announced a 20 for 1 stock split with their quarterly earnings. Effectively, they are taking back their dollar bills and handing out packs of twenty nickels. Companies split stocks when they feel that the price per share has become too high for investors to add to smaller portfolios. Many of our investment management clients have received a note from us when something similar happens in their accounts – since Google is such a large company, we felt it warranted mention here. It should be a non-taxable event and make no difference (theoretically) in the value of one’s holdings in the company.
With that, I’ll leave you to work on your taxes and much on Girl Scout Cookies. Better move fast though – nothing is safe from supply chain woes. Let us know if we can help, or you have any other questions. We love to hear from you!
[1] Real meaning inflation-adjusted
She lives in Portland, Oregon and serves clients nationwide.
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