"We don’t have to be smarter than the rest. We have to be more disciplined than the rest."
-Warren Buffett, Chairman & CEO, Berkshire Hathaway
Happy Tuesday,
The S&P, Dow, and Nasdaq were all down in January. That followed an up December where market rotation was the name of the game. In January, the S&P was down 5.3%, the Dow was down 3.3% and the Nasdaq dropped by 9.0%.
In our view, the markets continue to be driven by the Covid-19 recovery phases, government support payments, and the Federal Reserve announcements calling for interest rate hikes in the near term. 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.
That said, January was a rocky month and a rocky start to 2022. We believe the markets will remain a bit uncertain, with pull-backs becoming a regular event in 1H ’22. Our public equities portfolio, which includes a significant amount of hedging, is still up more than 14% on a one-year basis, and up more than 12% 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 down 5.3% to 4,515 in January, as the markets continued the un-even rotation into value investments, especially those that are profitable and have reasonable valuations.
The Dow was down 3.3% to 35,127 in January, as the markets continued the un-even rotation into value investments, especially those that are profitable and have reasonable valuations.
Nasdaq dropped significantly by 9.0% to 14,239 in January, as Tech and SPAC stocks were restrained by their already-high valuations.
In January, Covid-19 infections, hospitalizations, and deaths in the U.S. trended upward, but there seems to be a light at the end of the tunnel and most public health professionals believe we may have already hit the Omicron peak. In addition, the Fed announced the prospects of at least three rate hikes in 2022 to control inflation which has cooled economic expansion expectations.
In February, we believe public markets will continue the rotation to value stocks with real earnings. 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. In early January we increased the cash/bond portion of our public equities’ portfolio to 60% 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 profitable growth stocks which should increase as the country opens back up for business. Morgan Stanley, B. Riley, Berkshire, JP Morgan, Wells Fargo, Google, Apple, AMD, and Verizon (5% dividend) all continue to be top value selections as we view them as stronger and more nimble competitors in their respective sectors. Review our latest Top 10 investments here.
Thanks again for your consideration and ideas. Have a wonderful February 2022 ahead!
Best regards,
Marlene Oddo
Partner
PointFour Capital, LLC