Kovitz Newsletter 4Q21
I know the territory, I've been around, It'll all turn to dust, And we'll all fall down... I won't do that, No, I won't do that.
"The stock market is about as predictable as a two-year-old who skipped a nap and ate a Snickers instead. The moral of the story is, even if you could read tomorrow’s or next month’s headlines, you would probably still have trouble predicting the return of the stock market over short periods of time.
A foundational belief at Kovitz is that the stock market will provide satisfactory returns in the long run as, human ingenuity, competition, and a desire to provide for the next generation combine to direct capital to its highest and best use. A corresponding foundational belief is that the sequence of short-term returns that add up to the “long run” is inherently unknowable. "
CORE EQUITY COMMENTARY
"Despite worries about the resurgence of inflation and lingering concerns over COVID, including its latest installment, Omicron, the S&P had its best quarterly advance of the year during the fourth quarter. For the year, 2021 saw 70 new all-time highs for stocks, helping send the index to its best three-year performance since 1999. As we head into the new year, these two topics will likely continue to garner investor attention. Of course, there will likely be new worries as well. There always are.
After decades of dormancy, inflation has begun to materialize at levels not seen since the late 1970s/early 1980s. While back then it was primarily driven by surging oil prices, today’s inflation readings are due to consumer demand for many goods and services far exceeding what beleaguered global supply chains can produce in the near-term. This pressure on prices has been exacerbated by price increases due to upward wage pressure as employers pass on the costs of filling positions in a tight labor market. Price increases have also been flattered by year-over-year comparisons with a pandemic-driven economic slowdown."
FIXED INCOME COMMENTARY
"If ‘pandemic’ was the financial market’s buzz word of 2020, ‘inflation’ defined 2021. Since there hasn’t been much price inflation to talk about since the 1980’s, this is no surprise. The coronavirus pandemic created a perfect storm of inflationary pressures. Mass vaccinations and trillions of dollars of government stimulus boosted consumer demand while supply chains struggled to ramp up quickly enough, causing prices to climb. Reopening combined with the reluctance of several million people to return to the labor force also triggered a tight job market, leading companies to boost wages to attract and retain talent. These costs may eventually be passed on to consumers. The total impact is evident in the latest annual inflation reading of 6.8%1 , compared to an average rate of 1.7% over the prior decade."