At the start of every calendar year, we see the major financial institutions providing their ‘outlook’ for the markets. Usually, the outlooks are hedged by not being too divergent from consensus, but nonetheless, they all must predict something, knowing that if their thesis comes true, they can lay claim to have made the right call.
Yet another Market Outlook with a thousand moving parts. Patience is paramount now as we wait for each part to find its spot in this machine we call an economy. Right now, inflation is the problem, and interest
rates are the wrench of choice. The challenge is how hard will the wrench have to be torqued to get the desired results? Will the lug nut break, requiring a modified approach? Perhaps. In the end, we believe patience will be rewarded, and the laws of economic theory will eventually play out.
Double, double whammy. After two years of endless concern from a once-a-lifetime pandemic (let’s hope), and the clouds just starting to part, barely, we get hit with an unruly market bent on testing our already fragile mindsets; Double Whammy #1.
If this isn’t enough, let’s toss in inflation exhibiting the endurance of a marathon runner, coupled with rising interest rates increasing borrowing costs to businesses and consumers with higher rates on mortgages, car loans, credit cards, home equity and improvement loans, and personal loans of all types. When you can’t buy a new home, or a car, because of limited supply, now you can’t afford them from a budget perspective. Double Whammy #2.
A bull in a china shop.
Thinking about the present state of the economy, the bull in a china shop metaphor pretty much sums up how markets, central banks, and investors are looking to the future—delicate steps.
On our minds for early 2022 are several things – the pandemic, interest rates, and inflation. These will all be critical, near-term influences on the markets. We will address each in this Outlook.
When we consider the past 20 months, not only the people of the world, but also the markets, have displayed considerable fortitude.
Last quarter we made thematic references to “Back to the Future,” thinking perhaps the world was peeking around the corner at a return to some type of normalcy. As we start the second half of 2021, if our time traveler last quarter was dropped from the future into the Eastern United States today, odds are this traveler might not have a clue a pandemic just ravished the world.
Spring has sprung—weather-wise, spirit-wise, and market-wise. After a more than year-long pandemic, the markets are wanting to get Back to the Future.
On our minds is the power of the human spirit to endure and adapt. Be it pandemic, or political, the human spirit absorbs, processes, understands, and helps us form perspective. Perspective will be our theme.
This past year was not for the faint of heart. Lives were changed, and sadly, lives were lost. We will forever remember 2020, as will the history books.
Last quarter we started this Outlook with the following statement: Our thoughts could not be more focused…the virus is running the show. This Outlook could theoretically be a repeat story; COVID has changed life, and to this day, continues to influence everything we do and correspondingly how the markets perform.
