Who Dey - January market update
I grew up in Northwest Ohio, 100 miles from Detroit, 145 miles from Cleveland and 180 miles from Cincinnati. No person’s land from an NFL football perspective. My best friends were Cowboy, Steelers, Redskins and Bills fans. I adopted the Browns.
I was a huge fan when, in 1988, the Browns played the Broncos in the AFC Championship game. Infamously, Earnest Byner fumbled on his way to the endzone and the Browns lost 38-33. I lost what seemed like a fortune at the time, $10, to Dan over that fumble. The Browns packed up and left Cleveland when I was in college. When I moved to Cincinnati in 1995, it was easy for me to latch on to the Bengals. I was in my one bedroom apartment on Montana Ave when the Bengals traded up to #1 to take KiJana Carter. I was in that same apartment watching the pre-season game when he tried to loosen up his torn ACL behind the bench.
That was 27 years ago. Needless to say, my history as an NFL football fan has been bleak at best until this year. Joe Burrow (my wife calls him Macaulay Culkin given the resemblance) is the savior we were hoping for when they drafted KiJana. I made a bet with Dave in the office for lunch this year if the Bengals won 7 games. At 7 wins, I was getting Subway. When they got to 10 wins, I asked for an upgrade to Skyline. At this point, I’m pushing for Carlo and Johnny. WHAT A SEASON! During the past couple of games, we have a family text and my brother sent me a picture of the football helmet we still have at home – I’d forgotten I was a Bengals fan even before I moved to Cincy. I also found out dad jumped on the bandwagon!
I could talk about the Bengals all day long. But we need to talk about the markets. NASDAQ is down 11% in January alone. The Dow Jones is down 5%, the S&P 500 is down 6.8% and small caps are down 12%. Energy is the only sector up at 18.4% with financials at -1% and consumer staples (think Procter) the next best performing sector at -2%. What gives? As we talked as far back as a year ago, inflation is everywhere and the Fed was slow to respond. The supply chain is constrained, workers are scarce, the money supply was expanded as a response to Covid, stimulus payments went out and interest rates are near 0%. Each of those led to widespread inflation – energy (gas), real estate, food, and services, among others. Over the past month, the Federal Reserve declared an end to easy money, promising higher interest rates and a gradual end to expansion of the money supply. Throw in that geopolitical tensions have risen and….. Stock valuations are coming down as a result. That’s especially true for high valuation “growth stocks” and speculative tech stocks that did well during lockdown (e.g. Netflix, Zoom and Peloton).
Much has been written about the odd time we are in, where bonds don’t offer as much downside protection because they are at all-time high valuations. Still, we’ve seen a cushioning because bonds don’t tend to move as dramatically as stocks, even if they do drop. The total US Bond market is -1.4% for the month. And overweighting energy and financials has certainly helped our portfolios. We believe both sectors will continue to do well, at least in the near term. Financials tend to do well in a rising rate environment. And unless the economy heads toward a recession, energy should continue to do well. The market is notoriously hard to time. In addition, we see no reason to doubt the long-term fundamental strength of the US economy. We are looking for ways to get more conservative via value stocks and healthy dividend paying stocks while staying largely invested. We continue to monitor conditions and if the situation warrants, we will consider moving some assets to cash. If you have any questions, feel free to give us a call or email.
Jared
Brian Kellett, brian@kellettschaffner.com. Phone 513-312-6067
Dave Bodnar, david@kellettschaffner.com. Phone 513-258-6973
Jared Kline, jared@kellettschaffner.com. Phone 513-768-2238
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