Broker Check
Q1 2022 Market and Portfolio Commentary

Q1 2022 Market and Portfolio Commentary

January 21, 2022

The Nisivoccia Wealth Advisors continue to closely monitor the financial markets for changes, trends, and opportunities. The below reflects our commentary on the first quarter of 2021 as well as a look at our investment strategies.

There are multiple uncertainties facing the market in 2022, and more volatility should be expected compared to the abnormally low volatility we experienced in 2021. We think active management will be more important in 2022 as the strong growth we saw last year starts to fade, and the hot inflation we see currently starts to cool. 

2021, in no uncertain terms, was a great year for the S&P 500, as it hit a record high 70 times. It’s an axiom of finance that a low cost of money pumps up the value of assets. The present value of an investment’s future cash flows goes up as the interest rate to finance that investment goes down.  This is exactly what played out last year thanks to easy monetary policy and tremendous amounts of cash pumping through the global economy.  At its worst, the S&P 500 only experienced a 5% drop last year – uncharacteristically tame – since the average drop in any given year of the S&P 500 is almost 3 times that (-14%)!

As we enter the 1st quarter of 2022, it’s hard to imagine that we won’t see more volatility compared to last year.  Volatility usually results from uncertainly, and we are facing much of that in 2022:

  • How fast and how far will the Federal Reserve hike rates?
  • Will Russia invade Ukraine?
  • Will China’s draconian regulation of financial markets continue (and will they invade Taiwan)?
  • Will inflation continue to spike or moderate?
  • Will Biden try to run for another term?
  • Will Congress get anything done (and pass Build Back Better)?
  • Will this nasty Microbe ever subside and stop mutating?
  • Will supply-chain disruptions ease?

But many of those uncertainties will be resolved – and what the stock market cares most about is earnings, which once again are expected to hit record levels in 2022 (after hitting record levels in 2021).  Thus it is reasonable to remain confident that equities will still produce decent returns, but likely below levels we saw in the last two years.  Looking at history, in any year that the S&P 500 returned over 25% (like last year), there is an 83% chance that it will experience a positive return in the following year.

As investors, we are always trying to buy low and sell high.  At the risk of sounding like a broken record, we still believe an overweight to international equities versus US equities makes sense, since international equities, on a relative basis, are abnormally cheap when compared to US equities.  Additionally, when compared to Growth stocks on a relative basis, Value stocks are almost as cheap as they were during the bubble.   

We will continue to carefully monitor market developments and welcome the opportunity to speak with clients in more detail about portfolio strategies.

Nisivoccia Wealth Advisors, 2022