“Invite people into your life who don’t look or act like you. You might find that they challenge your assumptions and make you grow.”
- Mellody Hobson, Co-CEO of Ariel Investments
Happy Monday - and Happy New Year!
The S&P, Dow, and Nasdaq were all up in December. That followed an up and down November where market rotation was the name of the game. In December, the S&P was up 4.3%, the Dow was up 5.3% and the Nasdaq increased modestly by 0.6%.
In our view, the markets continue to be driven by the Covid-19 recovery phases, government support payments, and the support of the Federal Reserve. There continues to be an optimistic feeling regarding the re-opening of the economy, even though the Omicron variant poses some risk in the short-term. In addition, the recently approved Pfizer Covid-treatment pill, Paxlovid, should be readily available to the public within the next couple of months.
In addition, the probability of modest tax reform later this year is adding to that uncertainty. Countering that is the finalized $1.2T Infrastructure Plan that become law in November and the larger and broader “Build Back Better” bill of economic reform which has been reduced to ~$1.5T and is still looking to be approved shortly.
Therefore, we believe the markets will remain a bit uncertain, with small pull-backs becoming a regular event in Q1 ’22. That said, December was a good month and a great end to 2021. Our public equities portfolio, which includes a significant amount of hedging, is up more than 17% on a one-year basis, and up more than 13% on a ten-year basis. In our view, growth and value are both helping to propel the market higher, but at a much slower pace which is more consistent with history.
The S&P went up 4.3% to 4,766 in December, as the markets focused on many positive developments and some negative Covid and political developments.
The Dow was up 5.3% to 36,335 in December, as the markets continued the uneven rotation into value investments, especially those that are profitable and have reasonable valuations.
Nasdaq increased modestly by 0.6% to 15,646 in December, as Tech stocks were restrained by their already-high valuations.
In December, Covid-19 infections, hospitalizations, and deaths in the U.S. have trended upward significantly, with the Delta and Omicron variants continuing to take a toll in most areas of the country. That has added some confusion to a bright economic outlook where M&A transaction volume continues to be robust. The Fed also continued its unprecedented support of the economy, although the prospects of at least three rate hikes in 2022 have already cooled economic expansion expectations. The Housing sector continues to be a bright spot with strong consumer demand thanks to still-low interest rates.
In January, we believe public markets will continue the slow rotation to value and that overall returns will be positive, but mixed. That is not to say that growth stocks do not have a place in this economy. They do, but they will have to share the limelight with value stocks. We recently increased the cash/bond portion of our public equities’ portfolio to 25% and expect to maintain lots of liquidity in Q1 ’22 so we can periodically take advantage of any market corrections.
We especially like the Financial and Industrial sectors where values are more reasonable, and growth should increase as the country opens back up for business. Morgan Stanley, B. Riley, JP Morgan, Microsoft, Berkshire, J&J, and United Health Care all continue to be top selections as we view them as stronger and more nimble competitors in their respective sectors. Visit our Top 10 investments page to view what’s in our portfolio.
Thanks again for your consideration and ideas. Have a wonderful January 2022 ahead!
Best regards,
Marlene Oddo
Partner
PointFour Capital, LLC