A Journey, Not A Destination

Question:  In what ways will 2022 be different from 2021? 

Answer: During 2021, the speed of the economic recovery was center stage. Moving into 2022, the recovery depends on several items. Emphasis is on the Federal Reserve’s ability to manage monetary policy with precision, a steady hand and accuracy. Other considerations include corporate executive’s skills in maintaining healthy profit margins, pricing policies for oil, and supply chain decisions. 

Economic recovery was fueled by vaccines, stimulus packages, economic growth, and lower jobless claims. This year we face headwinds of inflation and slower growth. 

With the 2022 Olympics right around the corner, please indulge me as we have some fun with a few sports metaphors while discussing top themes for 2022. 

Ready for Take Off

As a former competitive downhill skier in high school, I fondly recall the thrill of pushing out of the gate at the top of the ski slope. The U.S. economy is ready for take-off. The difference is that we won’t have a tailwind of policy and fiscal support. What will help are healthy capital expenditures and rebuilding of inventories. 

Navigating the Fast-Track

Pent-up demand pushes inflation into the tight turns of the slalom course making precision and control critical skills in successfully maneuvering the track. There will be bumps along the way but expect economic growth to continue.

Swerve Between the Gates

Expect interest rates to zig and zag within a relatively tight range. The Fed is removing the safety net of bond repurchases and is expected to increase rates. Despite this, bonds may play a critical role for investors interested in managing risk. 

Icy Conditions Ahead

The dysfunction in Washington will continue but won’t halt the economy and financial markets. We saw an unprecedented fiscal stimulus spending last year and Trump-era tax cuts remained in place. The net result was that both parties held on to agenda items that stimulated the economy and supported equity markets. 

History suggests the incumbent party tends to lose seats in the House of Representatives in midterm elections. If gridlock is the anticipated outcome, major policy shifts may remain in the neutral zone. 

Accuracy over Speed

We’ve transitioned into a time where precision and exactness are more important than the speed component of the race. Steadily aiming for the right sectors and companies rather than just pure growth is suggested. 

Power Turns

Longer skis have more stability while shorter skis are less stable, yet quicker to respond and easier to turn. Longer skis may go faster but short skis turn faster. Just as there is no magic formula for the perfect ski length, there’s no one-size-fits-all recipe for the mix between large, medium, and small sized companies in a portfolio. Typically, small-cap equities have faster growth but are more volatile than large-cap stocks. Work with your CERTIFIED FINANCIAL PLANNER™ Professional to discuss your optimal allotments. 

Downhill Skiing or Snowboarding?

Snowboarding is relatively new to the Olympics; downhill skiers were once skeptical of its future. Snowboarding has evolved much like technology has advanced during the pandemic. We’ve increased reliance and dependence on innovation while increasing economic productivity. 

Once we try new technology it becomes part of life, whether it’s snowboarding or the Metaverse, growth begets growth. There’s a whole new world of 3D holographic avatars, virtual reality, and cloud computing all pushing technology spending to record levels. 

Margins are Thin

Predicting victory on a short course is more challenging than doing so on a long course. Variables have greater impact on outcomes in the short run. Supply-chain bottlenecks, COVID surges and differing policy responses can cause false starts. Long distance racers and investors may have more time and space to excel. 

Thrill of Victory or Agony of Defeat?

It will be hard to beat the thrill of 2021 while strategizing for 2022 and beyond. This year may be more like playing chess than checkers. The year ahead is both exciting and disquieting. As we pursue our investment goals it’s helpful to have a coach and a plan to navigate the course. Stay focused and plan accordingly. 

The opinions expressed are those of the writer as of January 10, 2022, but not necessarily those of Raymond James and Associates, and subject to change at any time. Past performance is no guarantee of future results. Material is provided for informational purposes. These views should not be construed as a recommendation for any specific sector or security. Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices. Consult your tax professional and financial advisor before making any investment decisions or bond purchases. Risks include, but are not limited to, changes in interest rates, liquidity, credit quality, volatility, and duration. Stocks are appropriate for investors who have a more aggressive investment objective, since they fluctuate in value and involve risks including the possible loss of capital. Dividends will fluctuate and are not guaranteed. 

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.” This article provided by Darcie Guerin, CFP®, First Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at (239)389-1041, email darcie.guerin@raymondjames.com Website: www.raymondjames.com/Darcie.