Market Commentary

January 12, 2022

Santa Claus Rally - Looking Forward 2022

2021 ended the year with a late mounted Santa Claus rally. Annual results clustered to highs in the S&P500 during the year. The last quarter, and virtually the full year, delivered positive results.

S&P500:                                Dec +4.47%                         2021 +28.68%
DOW:                                    Dec +5.53%                         2021 +20.95%
NASDAQ:                              Dec +0.75%                         2021 +22.21%
Russell 2000:                       Dec +2.23%                         2021 +14.78%

The S&P500 average is concentrated in a handful of companies; Apple, Alphabet (Google), Microsoft, Nvidia and Tesla. This group was responsible for almost 30% of the S&P500’s results for 2021.

2022

We expect the first half of 2022 to be volatile and troublesome. Since the beginning of the new year, the market has taken it on the chin in a daily fashion. The NASDAQ suffered the downside in particular. The close to -2% slide in the S&P500 accompanied by a -3.3% downdraft in the NASDAQ composite rounded out the market response.

Tech stocks were crushed. The advancing interest rate message hammered companies with growing revenues and only long-term earnings prospects. Earnings multiples abruptly shifted lower. Roughly 40% of the companies in the NASDAQ index have had their values cut in half from their 52-week highs.

Adding to this volatility was the Federal Reserve minutes, released on Jan 5th, and a shift in Fed policy to combat inflation, which dropped the DOW -400 points. The Fed message brought two steps to the fore. First…the likelihood of 3 or 4 rate increases. Second…decreasing the inflated Fed balance sheet, which has ballooned from $4 trillion to $12 trillion. The Fed pivot was faster than expected. Inflation conditions had changed the oft-repeated Fed warranty.

On the positive side, Financials picked up gains with the assured prospect of higher rates. Energy stocks shifted higher on the pricing outlook of $80 oil possibly moving to $100. The 10-Year Treasury has moved quickly up to the 1.70% yield level.

The “buy the dip” has been helped by comments from JP Morgan’s Jamie Dimon, a respected CEO. Dimon expects exceptional economic returns, exceeding 2021 in 2022. Dimon’s comments coupled with Fed Chair Powell indicating to the U.S. Senate that the Fed would act thoughtfully and not be rushed fueled a solid market rally on Tuesday, Jan 11th.

2022 Portfolio Strategy

In December, and early this month, we added defense to our portfolios by harvesting gains. Cash reserves are exceptionally high. We have added names from the Energy and Materials sectors while increasing portfolio yields. We continue to emphasize the Financial sector in portfolios. These pronounced correctional pullbacks provide opportunities.

Our sense is that economic results will be strong for all of 2022. After a bumpy first half of the year, we anticipate solid market gains for the full year, perhaps in the 10% range.

December 3, 2021

November 2021 Review - Looking Ahead

November Market Picture

The DOW worked lower throughout the month, -3.73% and +12.67% YTD…The S&P500 started with a new high in early November and trailed lower the rest of the month, -0.83% and +21.59% YTD. The NASDAQ followed the S&P500 pattern making an early month high and retreating, +0.25% and +20.56% YTD. The Russell 2000 finished -4.28% for November and +11.35% YTD. Individual stocks cast a negative tone overall. The month ended in unison on the downside, with the average stock acting poorly. 9 of 11 sectors were negative for November. Stock buybacks failed to hold the line under constant retail selling pressure. 53% of the S&P500 companies finished down 10% or more. On Tuesday, November’s last trading day, only 7 companies in the S&P500 ended the day in the black. Apple was the shining light of the group. Clearly, the averages can misrepresent activity. Below is a Year-To-Date comparison of the S&P500 with the DOW and then with the NASDAQ. As you can discern, the NASDAQ has clearly mimicked the S&P500 due to the equity names they share in the averages.

On the last trading day of November, Fed chair Powell surprised markets, saying that the Fed was prepared to quicken the taper of easy money policies. At the next Fed meeting, December 15th, a tightening discussion would be on the agenda. Powell suggested that the Fed will adapt amid risk of persistent inflation. The shift in emphasis alarmed markets. Equities, no matter market cap or sector, were down across the board. Coupled with a fresh Covid threat, the impact resulted in the S&P500 pulling back -2%.

Looking Forward

Wall Street firms are divided on market prospects for 2022, with fear of advancing inflation and negative real rates. Slower earnings growth, rising interest rates along with supply chain disruptions, will continue to dominate the economic scene. We are not yet out of the woods.

Many are suggesting a stock market bubble, and there are plenty of high beta stocks still well ahead of reasonable valuations. Erratically enhanced option trading only exacerbates the violent price moves. These elements will continue to promote volatility and daily price swings with added risk. Our view is that the S&P500 will approach the 5,000 level in 2022. There is rampant liquidity in the market. The length of cyclical growth of 2-3 years works in investors favor. Volatility will continue. We do expect a Santa Claus rally in the second half of December.

In GN&Co news, we are saying goodbye to Dora Strout this December. We’ll miss Dora! Dora has been with us for over 6 years and was a great addition to our GN&Co family. I know that our clients have enjoyed working with Dora, as have the many other people that have communicated with her on a regular basis. Dora is leaving to help with her husband’s family business in North Reading. Dora will still be assisting us in the transition with our new addition, Matthew Butler.

Matthew will be handling Dora’s role and has a great skill set in dealing with teams and clients. His background at State Street Bank & Co. and at Northeast Retirement Services are a plus for our Firm. We are excited to be able to add Matthew to our team and I’m sure our clients will enjoy getting to know him.

Commentary Disclosures

The information contained in this investment research has been compiled by Garrett Nagle & Co., Inc. from sources believed to be reliable. No representation or warranty, express or implied, is made by Garrett Nagle & Co., Inc. as to its fairness, accuracy or completeness. Garrett Nagle & Co., Inc. has not independently verified the facts, assumptions, and estimates contained herein. This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product. Garrett Nagle & Co., Inc., their officers, directors, employees or clients may have a position in any securities mentioned above. All estimates, opinions and other information contained in this investment research constitute Garrett Nagle & Co., Inc.’s judgment as of the date of this investment research, are subject to change without notice and are provided in good faith but without legal responsibility or liability. Investments in financial instruments carry significant risks, including the possible loss of the principal amount invested. Past performance is not a guarantee or indication of future results.

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Founded in 1976, Garrett Nagle & Company is a boutique investment management firm specializing in managing portfolios for high net worth individuals and institutions. Based in Woburn, Massachusetts, our portfolios are separately managed and customized according to each client’s individual risk tolerance and return objectives. The firm is a Registered Investment Advisor with the SEC.

Founded in 1976, Garrett Nagle & Company is a boutique investment management firm specializing in managing portfolios for high net worth individuals and institutions.

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