"The stock market is a device for transferring money from the impatient to the patient."
- Warren Buffett, Chairman and CEO, Berkshire Hathaway
Happy Tuesday,
The S&P, Dow, and Nasdaq were all down in February. That followed a down January when the recent market pull-back started. In February, the S&P was down 3.1%, the Dow was down 3.5% and the Nasdaq dropped by 3.4%.
In our view, the market is being driven by two divergent realities. On the one hand, the Covid-19 recovery and government support payments are pointing the economy in a positive direction and there is a generally optimistic feeling regarding the re-opening of the economy. On the other hand, the markets are reacting to near-term inflation spikes in the U.S. and abroad and the war in Ukraine. These two competing realities have roiled the markets for now, but we are in this for the long-term, so we need to keep a steady hand and look to add value investments in the near term.
That said, February was a rocky month and continues 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 13% on a one-year basis, and up more than 11% on a ten-year basis.
The S&P went down 3.1% to 4,374 in February, as the markets continued the rotation into only the best value investments, especially those that are profitable and have reasonable valuations.
The Dow was down 3.5% to 33,893 in February, as the markets continued the rotation into only the best value investments, especially those that are profitable and have reasonable valuations.
Nasdaq dropped by 3.4% to 13,751 in February, as Tech and SPAC stocks continue to be restrained by their already-high valuations.
In February, Covid-19 infections, hospitalizations, and deaths in the U.S. trended downward and there appears to be a light at the end of the tunnel with most public health professionals believing that we have passed 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 March, we believe the public markets will continue rotating to value stocks with real earnings. Back in early January 2022 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 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 and they do not have much exposure to Russia. Please visit our website for our latest Top 10 investments.
Thanks again for your consideration and ideas. Have a wonderful March 2022!
Best regards,
Marlene Oddo
Partner
PointFour Capital, LLC