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(New Year) Predictions & (Last Year) Distractions

We look at some of the common habits of investors at the beginning of the year, how they aren’t as productive as they may believe, and where that focus can be placed to achieve better results.


  1. Equity Markets – were mixed this week with U.S. stocks (S&P 500) down -1.88% while international stocks (EAFE) rose 0.11%.

  2. Fixed Income Markets – were lower with investment grade bonds (AGG) down -1.38% while high yield bonds (JNK) fell -1.27%.

  3. Fed Update – Federal Reserve officials are on record that a strengthening economy combined with higher inflation could lead to earlier and faster interest-rate hikes than previously expected, with all officials for the first time coming to a unanimous agreement that the Fed should begin raising rates this year. St. Louis Bank President James Bullard went as far as to say the Fed’s reputation and credibility as "inflation-fighters” is at risk and that the Fed should look to 3 rate hikes in 2022.

  4. 4. Inflation for Everyone – new data released this week shows rising inflation isn’t just a U.S.- centric concern with Euro-area inflation rising an eye-opening 5% annualized in December, while Asia and South America continue on with their own inflation struggles. 2022 is looking to be an eventful year in global central bank responses with many expected to tighten policy while others (i.e., EU/BOJ) are expected to keep rates near zero.

  5. Key Insight – [VIDEO] We look at some of the common habits of investors at the beginning of the year, how they aren’t as productive as they may believe, and where that focus can be placed to achieve better results. [ARTICLE] What lies ahead in 2022? Predictions are one of those common rituals to begin a year. We’ll discuss what had the markets attention as the year begins, and why using such information to prepare, instead of trying to predict, will get you in a better frame of mind.


Get Your Mind Right

Making money isn’t free. Seriously. Two of the biggest “prices to be paid” by investors are patience (i.e., don’t chase) and experiencing volatility (i.e., don’t panic).

I highlight this, because outside of March 2020’s blip, investors have been spoiled by a mostly historically smooth ride post GFC, including a couple of years that are among the least volatile years in history (2017 & 2021).

Here we are, down less than 2% YTD (in itself an absurd timeline given its week 1!) and the media has already struck up the band about the next impending doom. I saw a headline the other day, “Fed Minutes Spark Stock Collapse.” Really, over a couple percentage points? Are you falling for it? Hopefully not.

This is the time of year that many investors try to look back at 2020 to deduce what lies ahead. If it was a below average year, they wring their hands with worry wondering if their plan is broken and if it was an above average year, many fall prey to chasing last year’s winners or alternatively worrying about “market tops.”

None of this is constructive.


  1. Markets don’t care about arbitrary timelines like calendar years, and

  2. Average almost never happens. Only 6 of the last 94 years had a calendar year between 5-10% (average is approximately 8%) (see chart below).

What can/should one focus on?

  • Rebalancing their allocation to keep it in line with their long-term plan.
  • Evaluating relative performance of positions to their asset classes and role within the portfolio.
  • Updating their goals and plan to make sure it reflects the most current outlook.

These take more effort and more historical context but will serve to keep you on track far better than diving into the common articles/topics found in most of financial media.

What Lies Ahead in 2022?

Tis the season for people to make their “calls” for 2022. The truth is nobody knows, but you can probability weight some potential scenarios.

Our job as investors is to use such information to be prepared NOT to predict. That might mean being emotionally prepared to weather the inevitable storms that pass through, or mentally prepared to execute on a game plan that should be decided in advance, not concocted while emotions are running high.

Let’s begin by remembering that there are always potential reasons for market volatility, and today is no different. As JPMorgan pointed out, “the largest sources of risk are hawkish central banks, slowing growth in China, and global COVID restrictions, but most of these threats are already priced in. Even if they aren’t quite priced in the chances of them really materializing is minimal.” It’s noteworthy that JPMorgan remains bullish on equities.

The chart below is one of my all-time favorites that I seek to share at least a couple times a year because it highlights market drawdowns, even steep ones, are common and yet rarely result in the prolonged bear markets so many investors live in perpetual fear of. Despite an average intra-year decline of 14%, over 75% of years have still resulted in positive returns.

So, what are the biggest questions facing markets as we enter 2022?

The one that seems to have the markets attention most at this point is the relationship around inflation and the Fed’s next steps. That fear was triggered a bit this week after minutes were released which included statements that rate hikes could begin before tapering had concluded. However, while policy hawks such as St. Louis Fed’s Bullard reiterated hikes could be on the table sooner rather than later, he also said the Fed may engage in a “passive runoff” of their balance sheet which would be more “dovish” than current market expectations.

Most analysts are focusing on a few key factors to watch as we enter 2022:

  • Covid Case Counts – while omicron has proven to be a milder variant, and some believe one that could help end the pandemic as we know it, the reality is, it is impacting the economy for the moment due to worker shortages. A return to normal needs to occur soon or markets will likely begin to finally feel the weight of continued economic disruptions.

  • Inflation & the Fed – this is concern for markets largely because of its potential impact on the pace of interest rate hikes by the Fed (see point 3). And while data is likely to come in still relatively high next week, the reality is, it will reflect Q4 data which based on current real-time data, may have been a peak. We still believe the Fed will not prove as “hawkish” as feared and will use data such as, today’s employment weakness and abating inflation, to raise rates much slower than they currently are projecting (a market positive).

  • Economic Momentum and Earnings Growth – High Frequency data suggests the economy remains strong, and with abating inflation and a more dovish Fed, should keep the recovery alive over the totality of 2022. Current projections for 2023 are $250/share in earnings which means the market could visit 5000 at some point this year.

Using the common energy found with a new year to focus on your personal finances is a great idea, assuming that focus is put on the right areas. Let go of the common pressure to predict what lies ahead and use that time and energy to plan for those things you can control.

As always, we are here to help.

Have a great weekend,

Tim and team at TEN Capital

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