GDP Up and Stocks Down as January Jitters Jangle Markets

Stock and bond markets are particularly jumpy right now—in some cases hitting records for intraday volatility. On both Wednesday and Thursday, the S&P 500 was up around 2% intraday only to give up those gains and finish in negative territory. We haven’t seen two back-to-back round trips of that size since the onset of the Great Financial Crisis in October 2008. It’s only the second time it’s occurred in the last 40 years. That’s jumpy!

The market has become so fixated on rate increases that positive data on economic growth and corporate profits is being ignored. Growth stocks have been in a free fall since November. A staggering 60% of the 3,000 stocks in the NASDAQ Composite have fallen more than 50% from their respective highs. Looking at the S&P 500 components, more than a third now trade below their 52-week moving averages. Even blue-chip stalwarts like Disney and Starbucks have pulled back 25% to 30%. Traders have found very few places to hide.

But we’re not traders. We’re investors.

To be sure, keeping an eye on the tickers this week—this month—has been painful at times. Declines, whether in the markets or your portfolios, are never easy to watch. That’s why we continually recommend that investors focus on their objectives and their investment discipline. Look beyond the day’s headlines and you may find, as we do, some reasons to be positive (more on this below).

But most of all, what gives us confidence in the managers we invest with and the diversified portfolios we’ve built is our conviction that, like us, these market pros have seen it before, have invested through it before and have proven long-term track records. We’ve had meetings with several of the fund managers we invest alongside over the past few weeks and remain convinced that their investment disciplines, like ours, are intact.

Markets Deaf to Sound Economy

While Wall Street has been having conniptions since the beginning of the year, in the real economy things are not nearly so gloomy.

2021’s GDP numbers came out this week and they show the economy grew substantially faster from October through December than the consensus believed.

Moreover, of the one-third of S&P 500 companies that have reported earnings so far, 78% have beaten analysts’ predictions.

Not that it made much difference on Wall Street. After a brief upward tick, traders took one look at the strongest GDP growth in 40 years and went right back to their sell-off. All kinds of negative sentiment signals have hit records in recent days:

• The Volatility Index (VIX), a gauge of investors’ anxiety, rose to a 14-month high (38.5)
• The put/call ratio spiked to a two-year high (1.47) as traders sought protection from further declines
• Daily trading volume hit a 12-month high ($18.6 billion) as investors dumped stocks
• The number of bearish investors (53%) hit an eight-year high

A market so unresponsive to positive economic fundamentals is one where fear is in the driver’s seat. But these sentiment readings are extreme, and pendulums can only swing so far before gravity brings them back to center.

The market may certainly have further to fall; how much further, we can’t say. But, to paraphrase Warren Buffett, if the distinguishing trait of successful investors is the willingness to be greedy when others are fearful, right now certainly presents an opportunity for investors to distinguish themselves.

Investors Take the Long View

Despite the recent volatility, we’ve only backtracked about four months of gains—the stock market is close to where it was in early October 2021.

The Wall Street Journal’s Jason Zweig, a keen observer of the investment markets, put it well in a column published this morning:

“In a speech in 1963, the great investment analyst Benjamin Graham said: ‘In my nearly 50 years of experience in Wall Street I’ve found that I know less and less about what the stock market is going to do, but I know more and more about what investors ought to do.

You ought to do two things. First, put the market’s recent fluctuations in long-term perspective. Then, recognize that what kind of an investor you are matters more than which investments you own.’”

We couldn’t agree more. It’s how you respond to these periods as an investor that will ultimately determine success or failure in meeting your goals. 

Chart of the Week: Should You Heed the January Barometer?

We monitor a wide range of data to form our outlook on the market and the broader economy—every other week, we’ll spotlight one indicator our analysts have found informative. 

By Director of Research Jeff DeMaso

With the S&P 500 on pace to notch a loss in January, prepare to see a lot of articles citing the “January Barometer.” The idea behind this old Wall Street fairy tale is: “As goes January, so goes the entire calendar year.” Ignore all of this nonsense.

Since the S&P 500 index’s 1957 launch, it has etched a January decline 26 times—not counting January 2022. In only 12 of those instances—or less than half the time—did the S&P go on to record a negative calendar-year return. And note that by including those negative January returns in my calendar-year calculations, I’m giving this measure a head start.

Historically, 14 out of 26 times, a negative January was a “false alarm”—meaning that if you sold because the market was down in January, you had better than 50/50 odds of missing out on gains.

If only market timing was that easy!

Ask Us a Question!

We’re always interested in the topics or themes you might like us to comment on. As much as we try to cover the investment and economic fields every week, we know there’s still more that you might want to hear about. Ask us a question about investing, the markets or financial planning and one of Adviser Investments’ experts will answer it in a future edition of The Week in Review. CLICK HERE NOW TO POSE YOUR QUERY.

Diversification Is Dead…and Other Modern Market Myths—Webinar Replay

This week, in our live, interactive webinar, Adviser Investments’ team shared their views on the markets and what they expect for stocks and bonds in the coming months. Chairman Dan Wiener and Director of Research Jeff DeMaso offered their thoughts on the state of the stock market, whether diversification is broken, the folly of using commodities and gold as inflation protection, and why not to give up on growth stocks.

In our Q&A segment, Chief Investment Officer Jim Lowell, Vice President Kari Wolfson and Vice President Steve Johnson answered participants’ questions on a gamut of topics. They addressed the state of the housing market, the appropriate allocation to foreign stocks, the ideal time of year to take required minimum distributions, environmental, social and governance (ESG) investing and more.

To hear our experts’ answers to your most pressing questions about where we go from here, watch our First Quarter Webinar now!

Podcast: Investing in 2022—Our Analyst Roundtable

Less than a month into 2022, the stock market has already experienced sharper dips and steeper rallies than we saw through all of last year. In this episode, Chief Investment Officer Jim Lowell sat down with a panel of Adviser Investments’ in-house analysts to discuss what they’re seeing for the year ahead, including:

• The value of diversification during tumultuous markets
• Why a down year might already be baked in for the bond market
• The near-term risks and opportunities in cryptocurrency

Despite the drawdowns, we think there are reasons to be optimistic about investing in 2022. Hear the insights from our expert panelists to understand why. Click to listen now!

Financial Planning Friday
Understanding Your Credit Score

Just as your blood pressure reading is an indication of your health, your credit score provides helpful shorthand for your financial well-being. Many people only learn how they rank when applying for a loan or credit card. But regularly reviewing your credit score and credit reports can uncover trouble spots or suspicious activity before problems arise.

So, credit scores and credit reports: What’s the difference?

A credit report is an in-depth look at your credit history, showing the loans and credit lines you’ve taken out over time as well as your payment history and current level of available credit. It can also include any public records that shed light on your financial health (such as bankruptcy declarations, foreclosures or debt judgments).

A credit score is a single number that serves as a shorthand summary of all the information contained in your credit report, which lenders and others can use to quickly evaluate you as a potential borrower. Each of the three major credit reporting agencies—Equifax, Experian and TransUnion—has its own credit score, using information from a variety of sources. Many lenders also use credit scores provided by the Fair Isaac Corporation, or FICO.

You can review your credit report for free once every 12 months by requesting a copy at annualcreditreport.com. Doing so is not considered a “hard inquiry” on your credit and will not negatively impact your credit score. Reviewing your credit history gives you the opportunity to correct any mistakes (which will improve your score) and is an effective way to guard against identity theft. (For more on how to protect your personal financial data, check out our top five cybersecurity tips.)

While the credit rating agencies often charge a fee to view your score, many other services, like Mint, Credit Karma or even your credit card company, provide free credit score features. If you haven’t reviewed your credit score in the past year, it may be worth checking to see where you stand.

FICO, the most widely used credit score provider among lenders, tweaked its formula in late 2020. The biggest change is that now FICO takes a longer view of your credit usage—evaluating the 24-month trend rather than a monthly snapshot. This tweak means borrowers who pay off their credit balance on a consistent basis should see an improvement in their scores. Personal loans will also be considered separately moving forward. If you’ve consolidated credit card debt with a personal loan but still have high monthly balances on your cards, your score may be negatively affected.

Have questions about your credit score and how to improve it? Call your wealth management team. We’re happy to help.

Adviser Investments in the Media

This week, Adam Johnson, portfolio manager of Adviser Capital American Ingenuity, visited Fox Business with the optimist’s take on 2022’s stock market declines. Meanwhile, Chairman Dan Wiener had some advice on what Vanguard should prioritize in Financial Planning and Chief Investment Officer Jim Lowell stopped by Fox Business with his take on Federal Reserve policy.

In this week’s Market Takeaways, Senior Research Analyst Liz Laprade broke down the bitcoin sell-off, while Steve Johnson opined on shoveling for bargains in down markets.

Looking Ahead

Next week, we’ll continue parsing fourth quarter earnings reports for companies’ takes on opportunities and obstacles ahead. In addition, we’ll get helpful reads on manufacturing and the service sector, home ownership and construction spending plus a slew of gauges on the job market, including job openings and quits as well as the January unemployment rate.

As always, please visit www.adviserinvestments.com for our timely and ongoing investment commentary. In the meantime, all of us at Adviser Investments wish you a safe, sound and prosperous investment future.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.