We hope that your year is off to a great start!  The stock market has certainly kept us on our toes to start the year.  January brought with it some volatility as stocks pulled back to begin the year, with the S&P 500 ending the month down about 5%. (YCharts)

In our annual outlook that we published late last year we highlighted a few key themes to watch including inflation and monetary policy. We didn’t have to wait long for these factors to impact markets as we saw the following developments:

• Monetary Policy: Expectations for the Federal Reserve to hike rates have increased with investors now expecting 4 rate hikes in ’22 (CME FedWatch Tool). Investors often worry that rate hikes mean the end is near for economic expansion.  While it may be a signal that we are getting later in the economic cycle, stocks often do very well after the Fed begins hiking rates.  Since 1958, stocks have taken an average of 3.4 years to reach a market peak after the first rate hike. (LPL Financial). This doesn’t mean that we’ll end up with the same outcome, but it shows us that a rate hike is not necessarily a reason to sell stocks.

• Inflation: Inflation data has continued on a similar path as we saw last year, and hasn’t done much to surprise investors so far this year.  That said, we have seen wage inflation cited a number of times already in the Q4 earnings season.  While this is good to see for many workers, it has the potential to put pressure on corporate earnings and will be a trend to watch throughout the year.   

Our economic dashboard continues to signal that the chances of a recession in the near term are low.  We have portfolios positioned for growth, but wouldn’t be surprised to see the recent volatility continue to be a theme throughout the year.  We’ll be watching economic and market factors closely and will be ready to make adjustments to portfolios as needed.

Sincerely,

Your Team at TLWM

*Investment advice offered through TLWM, LLC., a registered investment advisor.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

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* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

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