- In what became another choppy week, global equity markets were negative across the board. We saw global markets (represented by the MSCI All Country World Index) down -4.2% and domestic stocks (represented by the S&P 500 Index) down -5.7%. It was small companies (represented by the Russell 2000 Index) lagging the pack, down -8.1% for the week.
- The NASDAQ, which features a collection of mostly growth stocks, saw a decline of -7.6% for the week. Sectors such as technology, communication services, and consumer discretionary have been some of the hardest hit by the recent rotation in markets.
- The Federal Reserve meets this week for their normal 2-day meeting. Markets will be looking for some guidance on their policy as inflation continues to drive headlines. At this time, markets are anticipating the first interest rate increase to come in March.
- After a lackluster 2020 growth rate, it was announced last week that China estimates an 8.1% GDP growth rate in 2021.
- The Q4 2021 earnings season got off to a mixed start with major banks reporting last week. This will be one of the busiest weeks of the season in terms of companies reporting quarterly results.
- Much of the recent market volatility is a result of expectations for monetary policy. Over the last couple of years, monetary policy has been extremely accommodative with low interest rates and a rising Fed balance sheet. It has been inevitable that the Fed must normalize interest rates (or at least increase them from current levels) and stop adding to their balance sheet. This does not mean that monetary policy is restrictive, but rather that they must work away from historically accommodative policy. We don’t see recent volatility as a long-term trend away from equities, but rather a market rotation given the new environment. In the end, we still expect corporate earnings to drive the outlook for stocks this year.
- I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
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