New Year Volatility and Your Portfolio | Stock Talk Podcast
Chris Perras: Hey, I’m Chris Perras, chief investment officer at Oak Harvest Financial Group, and it’s New Year’s Eve. First off, the team at Oak Harvest appreciates your support, and we appreciate you tuning in to YouTube retirement planning videos, as well as our weekly investment news or noise and Keeping You Connected to Your Money podcasts. If you like our content, we would welcome you referring our channels to your friends and family.
Despite the COVID pandemic and contrary to the ongoing forecasts of impending doom that you might have heard on the TV the past 12 months and in social media, we’ve made it through to the end of the year. We released our first half 2022 outlook on December 3rd under the title Curb Your Enthusiasm “Yields” to a Bull Market Buy. It can be found on our website at OakHarvestFG.com or in video format on our YouTube channel.
Given our forecast for a very sloppy and choppy first half of 2022 that could produce the market’s first -10% or more correction from higher levels, I wanted to give our clients and viewers a little more detail into what we are expecting from the markets throughout the first half of 2022. Recall, viewers, that very early on in the COVID recovery, our team’s view expressed almost weekly in our updates was that more than anything else, investors should not, one, fight the Federal Reserve, two, underestimate the collective intelligence and willpower of our science and technology communities in fighting the virus and in limiting both the health and economic impacts.
We start 2022 with the Federal Reserve finally slowing and likely reversing their massively easy monetary policy. It was initiated as QE4 as a response to COVID. This should start to slow in the first half of 2022. As longtime viewers know, we like to look at real-time pricing data series, investor sentiment, and forward volatility markets, in addition to other things to put together our forecast.
We believe that while history doesn’t often repeat perfectly, it does tend to rhyme as human and investor behavior and psychology follow pretty consistent patterns. If pressed for a model of 2022, I would respond, “It should look very normal second-year presidential term in a midterm election year during this cycle since 2008 or 2009.” Just as we modeled 2021 after 2009, 2013, and 2017, all first-year presidential terms under QE, we think that 2022 will look a lot like 2010 or 2018, neither of which were much fun for the first half.
Here’s a table on the monthly seasonality of the S&P 500 since 2008. Here it is right back here, lots of green, very little red. This is, essentially, since the Federal Reserve began QE. Viewers will probably be referencing this table all year focusing on the years of 2010 in 2018. Viewers can see from the chart and table the S&P 500, as well as the seasonality table, that both these years were not a lot of fun net for the first half.
If pressed, I would venture to guess that 2022 will look a lot more like 2010 than 2018. Why? Besides Federal Reserve policy being similar to these periods, I want viewers to think back to the political makeup of Washington DC in 2010. In 2010, the Democratic Party held all three seats in DC. They controlled the presidency, and they controlled both the House and the Senate. According to research at a team from Fundstrat, this has only happened nine previous times since 1938.
On only one occasion, which happened to be in 2010, did the Republican Party take back control of the House of Representatives and only the House during the November midterm elections. First, given the democratic majority in the House, which was meaningfully smaller than most pollsters predicted going into the 2020 presidential election, second, given the number of seats up for election in 2022, and finally, given for the president’s waning approval ratings, it is our belief that the November 2022 midterms will be a wipeout of near-historic proportions with control of the House going back to the GOP and Republicans.
As one can see from the charts and table, 2010 was a horrible, volatile year for the markets for the first nine months of the year. The first half of the year was down around -7.6%, and the first eight months were down about -5%. It wasn’t until we approached the last four months of the year and started to exit the summer months and got closer to the election that the markets gained traction for the year.
The end of 2010 ended on a high note with a post-election rally continuing pretty much straight up into Tax Day of 2011. Will that happen again? I don’t know. No one does, particularly this far out. Can it happen again in a similar manner? For sure, given the likelihood that the Federal Reserve moves create volatility throughout the first three quarters of 2022. However, as we approach the election, expect the economy to slow, it always does, expect the doomsayers to reappear, they always do, but expect the Federal Reserve to step out of the way.
Believe it or not, they’re trying to remain non-political. Expect the markets to anticipate a post-COVID acceleration in the economy for the winter of 2022 and the first half of 2023. Is this crystal ball stuff? Yes. Forecasting out more than a few quarters is always fraught with peril and errors as unpredictable black swan events like 9/11 terrorist attacks or a global pandemic can and always hit out of the blue.
However, whether our forecast proves accurate or precise or occasionally and rarely both, the entire team at Oak Harvest will be here on watch and serving our clients and others seeking out our experience and expertise, and advice. Viewers, give us a call here and ask to speak to one of our advisors. Let us help you craft a financial plan that meets your retirement goals and needs first and your greed second. Give us a call here at (877) 896-0040. We’re here to help you on your financial journey into and through your retirement years. I’m Chris Perras and have a happy new year.
CFA®, CLU®, ChFC®
Chief Investment Officer, Financial Advisor
Chris is a seasoned investment professional with over 25 years of experience working with some of the most successful money management firms in the world. Chris has made it a point in his career to adapt as the market landscape changes, seeking to utilize the appropriate investment strategy for a given market environment. His transition from managing billions of dollars at the institutional level to helping individuals and families retire is guided by a desire to see first-hand the impact he is making in the lives of clients at Oak Harvest.