February 2022
Market Update

This is the time of year when we desert dwellers in Arizona …. Well, we gloat a bit.  Summer and blistering heat will be here soon enough, but right now we get to enjoy temperatures in the 70’s, bright blue cloudless, rainless and certainly snow-less days!  In the meantime, we are watching our friends and family from the Midwest to the Northeast batten down for yet another major storm blowing through this week, with record low temperatures and record snowfall.  Brrr!

And one might say the same for the start of the year in the stock market …. Temperatures and enthusiasm dropped  quickly as we moved from smooth sailing to air turbulence, watching markets move over 1,000 points in the space of a single day.  The final few days of January, bargain-hunters went shopping as most of the major indices had dropped into correction territory – defined as a decline of 10% or greater.  Despite the turbulence, the S&P had recovered almost half of its early losses in the last two days of the month, but small company stocks are in definite correction territory, having dropped more than 20% since their November 2021 highs.  The question for 2022 will be whether January is the recipe for the rest of the year? 

There are several underlying causes for what we are seeing:  a market that had an amazing run up over the past two years might be considered expensive.  Rising tensions between Russia and the Ukraine have only slightly distracted us from the latest virus variant.  But most importantly, the Federal Reserve has begun to shift from easy monetary policy by accelerating the end of their bond purchasing program and to signal several interest rate increases, with the first coming as soon as their March meeting. 

We have pointed to monetary policy as the driving force behind the amazing recovery coming out of the pandemic, so it should come as no surprise that a change in these policies will affect markets.  The initial steps include dialing back on the amount of bonds that the Federal Reserve is purchasing.  When the Federal Reserve intervened during the height of the pandemic, they stepped in to purchase bonds that provided essential liquidity to the stock market.  That move was massive and important.  It drove the balance sheet of the Federal Reserve from $3.5 Trillion to over $7 Trillion in about six weeks.  A ghastly high number, but make no mistake – without that move, we would have had a much different stock market these past two years.  The trick now, is to take away that punch bowl and see if what has recovered can now be self-sustaining.  Will there be other buyers to step in and buy the mortgages and corporate debt that the Federal Reserve was purchasing, and only time will tell. 

Secondly, they have felt pressured to respond to the issue of inflation and the policy tool they wield to help slow that impact is the short-term interest rate.  At their most recent meeting this month, they have signaled the first rate increase for March of this year and the market is anticipating at least four increases at each of their next meetings, potentially five.  This should translate into higher mortgage rates which may help temper the pace of home sales.  The danger is that these tools can often take time to show up in the economic numbers and patience may be a virtue, but one that has been in short supply in this country of late.

The impact of the Fed policy changes and plenty of other ‘headline risk’ from national events will all have their mark on the stock market this year.  For a more in-depth discussion on these ideas, we encourage you to join us for this quarter’s zoominar on Wednesday, February 9th.  If you have not yet registered, you may do so by linking to the registration here: CLICK HERE.  As usual, we will record these and will also push out a link to the recording once it has been published to our website.

In your portfolios here, we saw risk-off (move to cash) trades for the first time in quite a while as we have exited several of our bond positions and have been bounced out and then back in to various stock positions.  We anticipate markets will continue to be volatile as we move through this “regime change” with the Federal Reserve beginning to tighten monetary policy .  Because it has been a few years since the markets took a big hit with the pandemic fears, it can feel a bit unsettling to see those nice plump account balances take a hit.  Markets do not go up forever and we want you to consider your risk level as we go through these next few months to ensure you are comfortable with those moves in your portfolio. 

After a two-year hiatus, we are all anxious to get back to doing “normal” things and decided to proceed with our annual Client Appreciation event … Spring Training 2022! … just in time for the Major League to announce their strike and throwing a return to the diamond in question.  We are going to proceed as though they can iron out their contract disputes and begin our registration for the games.  We have reserved seats for the DBacks vs. Rockies for Saturday, February 26th at Salt River Fields, and our second game is of course the Cubs vs. the Giants at Sloan Park in Mesa on March 1st.  Please reach out to Kim Costlow at the office or via email: CLICK HERE to reserve your tickets now.  Let’s hope for the best!

Of course it is now also tax season.  Many of you have already seen tax documents in your mail!  All custodians, like TD Ameritrade, have until the middle of February to mail those 1099’s and we encourage you to make sure you have the most up-to-date 1099 as revisions are common, especially for taxable accounts.  We would like to point you to our latest website tool, to give you better insight into some of the special tax items for both Arizona and Utah, along with important filing dates and links to relevant forms and resources: CLICK HERE. As always, we are here to assist you and if you need a tax preparer to help you file your return, we have several cpa’s we are happy to recommend.

If you have questions, please contact us.

FINANCIAL PLANNING
TAX PLANNING
401(K) ALLOCATION
GRAPHIC OF THE MONTH

To download the February 2022 Newsletter: CLICK HERE