Happy New Year!

I think we can still say that even though we’re already into the 2nd half of January. I hope that the holidays were enjoyable and meaningful. I always look forward to the new start that January brings. This is still the case, even though we continue to find ourselves living in very different and often difficult times.

2021 marked an amazing recovery from one of the fastest and sharpest declines of the economy and market ever experienced in 2020. In fact, the recession was the worst since the Great Depression in regard to employment and production, yet also far more brief than most contractions.

The S&P 500 was up nearly 27% in ’21. Although this index is often referred to as the standard “market”, it represents just one investment area - the Largest US companies. Other areas of the market did not fair as well with Emerging Markets posting a negative -2.2% and High Yield bonds barely positive at 1%. I mention these two areas only because they have outpaced the S&P 500 over longer times spans. Commodities, an area that most analysts are bullish about in ’22, have a negative average return over the past decade. My point here is that no one can predict which area or sector of the market will be the next leader. Attempting to do this can have very negative consequences on long-term returns and goals.

Our objective is to position client assets to have the best chance of providing the returns needed to fund their lifetime goals and needs, without taking undue risk. This might actually be far lesser returns in the short run than the overall “market”, especially if we’re looking at just one index.

And now, on to expectations and projections for 2022. The attached report from JP Morgan Chase, touches on the themes listed below, but also provides a broad perspective looking back 25 years and forward for 10. I am in agreement with most of what they present, as are the majority of analysts reflected in each firm’s annual Outlooks on the economy and markets. The firms tend to not vary too far from each other.

• Continued historically low rates alone are enough of a reason to expect gains in equities.
• Long lasting effects of government spending have produced solid household balance sheets, with consumer spending being a main driver of GDP.
• Expectation of double-digit profit growth.
• Improving Labor productivity reflects underlying economic growth.
• Inflationary pressures are bad for bonds, but not necessarily for stocks.

This last point regarding inflation is just another reason for Bonds to continue, as JP Morgan puts it, as “serial losers”. This has been a challenge for a decade – finding “safe” income to meet client needs. We have successfully implemented strategies and utilized other asset classes to obtain higher yields, although increased volatility is one side-effect. Even with bonds continuing to struggle and lower expectations for stocks by historical standards, it is still very hard to find any signs of cracks in the economy that would lead to a recession in the near term. This is good news for 2022 - and we all could use a bit more good news in our lives after what the world has gone through in the past few years!

Jack

Jack Schniepp is a CERTIFIED FINANCIAL PLANNER™ (CFP®, ChFC®) and the owner of Cascade Financial Strategies. CFS is a registered investment advisor located in Bend, Oregon and licensed in Oregon, California, Washington, Arizona and Idaho. They specialize in socially responsible investing which integrates environmental, social, and corporate governance (ESG) criteria into portfolio construction.