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Transcript

Hello, and welcome to our Market Alert video for the week ending January 21, 2022. You may be wondering, “What the heck is going on with this crazy market?” Oh my gosh, it seems like it’s going down every day. When it was going up every day last year, what the heck has changed? What’s going on? Well, there’s two answers. In our view, one is that the Federal Reserve has announced that they’re going to be raising interest rates. So, we have this whole dynamic of trying to digest so many questions. What does it mean? How do we adapt to that? How’s the consumer going to be affected? What’s going to happen to the growth of the economy and profits? Now, our other answer is that it appears we may be coming to the end of the pandemic—wow!

For example, England has chosen to eliminate all mass mandates, including vaccination requirements; they’re done, so they’re lifting all limitations, and everyone can return to normal. We’re also seeing the CEO of Pfizer say that by March, we should be back to normal again, and the pandemic may be over—but that’s the second thing that is being digested. So, what does that mean? If you look at companies like Netflix, they were huge beneficiaries of the pandemic. Low interest rates make life more affordable for consumers by reducing the amount of money needed to get loans and credit cards. Because of this, consumers have more money to spend, and because they’re locked at home due to a pandemic, they’ll spend it by binge-watching thousands of hours of shows on Netflix. Now that interest rates are going up, they have less money, and the pandemic may be coming to an end.

We think companies like Netflix and the technology companies that were the massive beneficiaries of the pandemic are now going to see their stock prices fall. In fact, Netflix’s stock price fell back to where it was before the pandemic started. What does this all mean? Technology stocks make up a big component of the stock market, and if they’re falling in value, the stock market will fall with them. Is this a sign that we’re about to enter a big bad bear market and a recession? We’ll have to wait and see, but it doesn’t appear that way to us right now. So far, 60% of the S&P 500 index businesses that have reported earnings have surpassed their estimates. As long as profits hold, we believe that the market will have its volatility, but things should work out.

Having said that, it’s possible that we could be wrong. We could see a massive drop in the market, or a severe recession; we’ve discussed about what we perceive as potential causes, and we’ve given them a low likelihood, but they could happen. One, of course, is that the Federal Reserve acts too quickly, either by raising interest rates too quickly or they act too slowly. They don’t raise them fast enough. Either way, that could be considered to be a policy mistake—the economy goes into a recession, and we have a bear market. The tensions, which we’ve touched on briefly before, are the other consideration. That is, China invading Taiwan, just as Russia is invading Ukraine—all of those things could cause some upheaval. However, we rate those as having a low probability, but we’ll see.

Overall, there is a lot of anxiety digestion of the interest rate hikes, as well as the possibility that this is the last wave with the Omicron variant, and that we will finally return to normality. All of those things are causing the back and forth that we see in the market currently. This is why we have our Invest and Protect Strategy™ ready to be implemented should we reach our sell signal. A normal correction in the S&P is about a 10% drop in the market, and right now it’s about seven. So, it hasn’t even reached correction territory, despite all of this.

Lastly, make sure that you watch your mailbox because we’re going to be sending you a very, very exciting and important announcement video. We know it’s rare when we say something’s mandatory, but as a client, this one that’s coming is. We want you to watch it because we have some fantastic news about some major changes we’re making. We’re so excited and we want you to know everything about it, so keep an eye out. Thank you for watching this video and we will talk soon.