Playbook 2022
January 24, 2022
In my job, I get asked one question more than any other: “What do you think about the market?”
During the quiet time after Christmas, I like to reflect on the past year and ponder the year ahead: What did we accomplish and learn from last year; what are the risks and opportunities ahead for us this year. Most Wall Street firms publish their outlooks for the year, including market predictions, but I would rather spend time trying to understand the risks in the markets as I seek to assess the opportunities ahead. My overall goal is to develop a tactical ‘playbook’ for the year.
We all know that 2021 was a fantastic year for investors. The year began with the introduction of COVID-19 vaccines, plenty of jobs, an economy showing signs of a solid recovery, plenty of cash in the hands of companies and consumers, and a Fed that did not intend to raise interest rates. The investing crystal ball for 2021 seemed clear and the market responded favorably, making the Covid inspired volatility of 2020 a distant memory.
January of 2022 feels a lot different than January of 2021. Investors now see a Fed committed to raising interest rates this year. Consumers are seeing high levels of inflation on many products they need. Companies are facing severe labor shortages and workers demanding higher wages.
Overseas, Russia is threatening invasion of Ukraine, and Chinese leaders have made it challenging for investors to understand the rules of their game. U.S. midterm elections this Fall may show that voters are looking to blame someone for a laundry list of frustrations, including the ever-changing rules on the pandemic, difficulty in sourcing test kits, and limitations on travel as flights are rescheduled or canceled. Consumers are unhappy -with their biggest current being inflation. If an investor is looking for uncertainty and risk, welcome to January 2022.
Money is fluid and must be held or invested in something. The traditional “somethings” are cash, bonds, stocks, and private investments like real estate. Investors typically have one main goal for their money – an acceptable rate of return for the risk they are taking. The current level of uncertainty may cause investors to reassess their risk tolerance, causing a realignment of some of their investment decisions. Some investors may want to come out of bonds in a rising rate environment, and those that have benefitted from the darling growth stocks of the last several years may look for safer havens.
This rotation of assets and rethinking of risk could be a major market story for 2022. This year’s tactical playbook may require more patience and caution than last year as the stories around volatility and risk continue to unfold. Moreover, this is a year where the playbook will likely need frequent updating in response to changes in economic and market conditions.
Carl Gambrell
