Seamark View

INVESTMENT MARKET OVERVIEW

4th Quarter, 2021

Prepared by

R. William Blasdale

January, 2022

Here are the indices that we typically review:

                                                                                                                                           2020%                                                                      2021%                                                                                         

Russell 1000 (Domestic Large Cap):

20.96

26.45

         Russell 1000 Large Cap Growth

38.49

27.60

         Russell 1000 Large Cap Value

  2.80

25.16

Russell 2000 (Domestic Small Cap Stocks):

19.96

14.82

          Russell 2000 Growth

 34.63

  2.83

          Russell 2000 Value

   4.63

28.27

Russell Mid Cap

17.10

22.58

          Russell Mid Cap Growth

35.99

11.77

          Russell Mid Cap Value

  3.73

28.34

MSCI EAFE (International Stocks):

  7.82

11.26

MSCI Emerging Markets:

18.31

                                 8.09

Fixed Income (Bloomberg Barclay’s US Agg):

  7.51

 -1.54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                               

 

 

 

 

 

 

 

Well, it was quite a year!  Despite all the forces that could potentially roil investment markets - e.g., Covid, extreme political dysfunction, etc. -equities performed spectacularly well.  Domestic large cap stocks were up over 26%, which followed a gain of almost 21% in 2020.  That is, quite simply, extraordinary.  Mid-caps also did well, and, while small caps eased off the pace of 2020, a 15% return is still excellent.  The value style of investing enjoyed a dramatic comeback across the board, although the differential between growth and value was less dramatic for large cap equities.  Overseas, international and emerging market equities enjoyed a good 4th quarter, but annual performance still lags that of the domestic sectors.

Fixed income returns continued to be a challenge, with the Barclays’ Aggregate (AGG) index showing a negative 1.54% return.  As I mentioned in the last Overview, the AGG has a duration (measure of interest rate sensitivity) of 6.75, which places it in the “intermediate” bond category.  Bonds in this category are somewhat exposed to loss of principal as interest rates rise, and this is exactly what happened last year.  Fortunately, we shortened the duration of our taxable bond portfolios, and we were able to avoid much of this negative effect.

So much for the rearview mirror!  The obvious question is: what is the road ahead looking like?  While short-term predictions are precarious at best, the longer-term trends are clear.  First, equity markets will not continue to compound at 20+%.  Inflation has now reared its ugly head, and the Federal Reserve (FED) has indicated that they will “take away the punch bowl” of low interest rates.  They have already started to “taper” their purchases of US Treasury notes, and they will shortly begin to increase the “discount rate” in increments of 0.25% (“25 basis points “or “BPS”).  There could be four such increases, for a total of 1%, in 2022. 

The current high rates of inflation have many sources:  overhang from the huge fiscal stimuli applied in 2021, huge pent-up demand for capital goods, supply chain constraints and the increased cost of labor.  The first three sources will recede in 2022, but wage increases are here to stay.  We currently have a full-employment economy.  There are significantly more job openings than there are folks to fill them, and virtually anyone who wants a job can get one.  All of this, of course, is complicated by the ongoing effects of the Covid pandemic.  Many people fear going back to work because of health concerns.  Others can’t find affordable childcare and are forced to stay home.  Still others have joined the “great resignation,” concluding that the risks and difficulties involved with working outweigh the benefits.  This is especially true with those who are at or near retirement age. So wage inflation will remain for a while, but other forces will ease off.  Most experts predict that inflation will average 2.5 - 3% for the year.

The net result of these factors will be muted investment returns going forward.  Vanguard is calling for 10-year annualized return expectations of:

2.3-4.3% for US equities, 5.2-7.2% for global equities, and 1.4-2.4% for US aggregate bonds.  These may turn out to be super-conservative predictions, but they make the point that we all need to lower our expectations for the overall performance of balanced portfolios.  It may well be that returns will be significantly better (let’s hope so!), but prudence dictates that we base future plans on realistic assumptions.  In the end, the “markets” will do what they will do, and that is largely beyond our control.  We can, however, exercise control over what we spend, and prudence dictates caution going forward.

Lynne and I are finalizing our annual internal portfolio reviews, and we will be contacting you to reaffirm your asset allocation and to discuss rebalancing.  If you have any questions or concerns in the meantime, however, please just let us know.

As always, we very much appreciate your continued trust and confidence.

 

R. William Blasdale

January 12, 2022

 

This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. This presentation may not be construed as investment advice and does not give investment recommendations. Any opinion included in this report constitutes the judgment of Seamark Financial Services, Inc. (Seamark) as of the date of this report and are subject to change without notice.

Additional information, including management fees and expenses, is provided on Seamark’s Form ADV Part 2. As with any investment strategy, there is potential for profit as well as the possibility of loss.  Seamark does not guarantee any minimum level of investment performance or the success of any portfolio or investment strategy. All investments involve risk (the amount of which may vary significantly) and investment recommendations will not always be profitable.  The investment return and principal value of an investment will fluctuate so that an investor’s portfolio may be worth more or less than its original cost at any given time.  The underlying holdings of any presented portfolio are not federally or FDIC-insured and are not deposits or obligations of, or guaranteed by, any financial institution. Past performance is not a guarantee of future results.

Presentation is prepared by: Seamark Financial Services, Inc.

(508) 758-6159

www.seamarkfinancial.com

Copyright © 2016, by Seamark Financial Services, Inc.

 

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