On February 10th, Blooming Tree Wealth Management hosted our first Virtual Lunch Webinar of the year and discussed the Market outlook for 2022.
We started the virtual lunch by taking a peek at the 2022 LPL Outlook. We also looked at the Market’s current state and discussed what actions the Fed (Federal Reserve) may feel forced to take. At present, the Market is focused on and reacting to three main Fed moves:
- Raising rates
- Tapering
- Reducing the balance sheet
One question submitted during the webinar was, “Were there any surprises in January?” Ryan shared what surprised him during the first month of the year.
“I didn’t expect the 10-year treasury to reach 2% as quickly as it did. Coming into the year, I also didn’t think we would see more than three rate hikes. Now the Fed says it’s open to having as many as seven, although I think we land around four.”
The 10-year treasury rate moving to 2% was unexpected. At the end of 2021, the rate was around 1.51%.
We then moved on to the Omicron variant and how the economic impact of COVID seems to be waning. Thankfully, there’s been a large drop in cases, but even when confirmed cases were at their peak, the January job numbers still came in strong. Consumer spending continues to tick higher (well above pre-COVID numbers), and while there are still pockets of the economy that have room to strengthen, the overall fundamentals are strong.
Inflation is here. We are currently experiencing a lot of inflation (a 40 year high), making it almost a sure thing that the Fed will raise rates for the first time in a long time in March. We fully expect tapering here, which is to say the Fed is going to halt the purchase of assets. By June, we can also expect the Fed to share details on their plan to reduce their balance sheet. To summarize, rates, tapering, and balance sheet reduction are all impactful when it comes to the balance between supply, demand, and price.
The Earnings Story
Are you worried about the market?
When there are signs of trouble in the market, which include rate increases and rapid inflation, one place to look is at company earnings. In the chart shown above by JP Morgan Asset Management, each bar indicates one year. A green bar represents a calendar year that did not set a record for company earnings, while a gray bar represents a record year of earnings. A blue bar, which we see for 2021, 2022, and 2023, represents a year of expected record earnings, and by the looks of it, each of these years will smash the previous year’s record. While a record year in earnings in 2021 was expected after a tumultuous 2020, continuing to build off that momentum and setting records in the next two years is an extremely positive sign.
So what does this mean?
A recession is not (likely) right around the corner. Companies driving the S&P 500 are doing well, and upcoming earnings look strong. Earnings support stock prices, and we should near an S&P of 5,000 or better by the end of the year, and possibly 5,500 by the end of 2023.
Ryan closed with some words of encouragement as we continue to tear through 2022. “Focus on quality and value, stay optimistic and confident, but brace yourself for a more volatile 2022. If you need affirmation or any help, I’m here.”
Join us in Q2 for another BTWM Virtual Lunch Webinar. As always, it’s free to attend, and we will answer any and all of your questions. Let’s make it a great year!
Have questions about the current state of the market or your retirement portfolio? Contact ryan.oconnell@bloomingtreewm.com.
Looking for more? Download the 2022 LPL Outlook here.