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This Month's Newsletter

This Month's Newsletter

December 21, 2021
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Recap

Welcome to the December edition of the newsletter!

It’s a little hard to believe that 2021 is almost in the books. Hopefully you find a quiet moment to reflect on the past year and to think about all of the gifts you may have received – tangible or intangible.

One ‘gift’ none of us were looking forward to is another variant of COVID. The World Health Organization designated the newest strain a ‘variant of concern’ and gave it the Greek letter Omicron. Existing vaccine efficacy against Omicron’s mutations is unknown, though the drug companies are striking a confident tone. Still, markets reacted negatively to news and sold off sharply in a shortened trading session on Friday, November 26th.

How worried should we be about Omicron’s economic impact? Supply chains have been playing catch-up all year, so the new variant could increase delays if countries choose to tighten restrictions. Consumer spending has been robust heading into the holiday season, so even if tighter restrictions return to bars, restaurants, and stores, we may see a dip rather than a full disruption in spending patterns.

In short, there’s a distinct possibility that Omicron’s impact is limited to a few bad trading days at the end of the year. At worst, Omicron’s impact may end up being like easing off the economic accelerator rather than slamming on the brakes – though the situation remains fluid and new information could alter the outlook.

Image source: Coindesk

In other news, did you know an original copy of the US Constitution was up for sale? Hedge fund billionaire Ken Griffin won the auction with a $43.2 million bid, a record for any book, manuscript, historical document, or printed text, according to auction house Sotheby’s.

Notably, Griffin beat out ConstitutionDAO, a crowdfunded coalition of 17,437 donors seeking to acquire the historical document. DAO stands for decentralized autonomous organization, a coalition of unaffiliated individuals organized using blockchain technology.

Would you believe the Empire State Building was once acquired in a similar way?

In 1961, a coalition of over 3,000 individual investors joined developers Lawrence Wien and Harold Helmsley to purchase the Empire State Building for a then-record $65 million. The average investment was $10,000. Known as a syndicate, the approach allowed individual investors to own a piece of the Empire State Building’s profitability without taking on the risk of operating the building themselves.

Even though ConstitutionDAO wasn’t successful, it’s not the first time a group of smaller investors banded together to acquire a piece of Americana – it’s just the first one to involve blockchain technology!

We’re grateful to count you as a client. If there’s anything you need, please schedule some time with our office.

Stocks

Stocks were mostly negative this month as the market digested news of the latest COVID-19 variant and the potential implications of tightening monetary conditions.

Energy retained its spot as the top-performing sector this year, however, not without a volatile November. Real Estate leap-frogged into the top-three by losing less than Financials, which dropped nearly 6% in November.

Industrials, Consumer Staples, and Utilities each suffered a down month in November, though year-to-date performance remains positive.

Bonds

The market retreated from stocks in favor of bonds, nudging performance into positive territory for the month. Despite the bump, bonds remain negative year-to-date.

Economic UPDATE

President Biden re-appointed Jerome Powell as head of the Federal Reserve – good news for those hoping for continuity at the central bank. Powell concluded his term by signaling his desire to tighten monetary conditions by inching up interest rates and tapering the Fed’s bond purchases. Now that he’s been reappointed, expect the Fed to follow through on those two policies. If the market hates anything, it’s uncertainty.

Image source: New York Times

As Powell begins his next term, we find ourselves in a three-way stand-off between the Fed, the pace of economic growth, and the rate of inflation.

The Fed’s decision to drop interest rates to zero and pump billions of liquidity into the system doused the recessionary fire caused by the global pandemic. However, while the economy recovered faster than any recession before, the amount of money circulating in the system helped send inflation to levels not seen since the 1990s.

Historically, the Fed uses higher interest rates to attack inflationary conditions. The thinking there is that a higher cost to borrow money will discourage spending and encourage saving, giving the economy time to find a healthier equilibrium between supply and demand.

So, why not stop printing money and raise interest rates right now – just get it over with? There are very real concerns that moving too quickly could trigger another recession just as the economy is finding its footing (November’s unemployment rate came in at 4.2%, a few points from pre-pandemic levels) – drastic action often begets drastic results. Meanwhile, the pace of inflation may force the Fed to raise rates before they intended.

And so, while we wait to see how the situation evolves, we believe that a diversified portfolio aligned to disciplined, long-term approach is the best way to navigate market uncertainty.

Please schedule some time with our office to discuss any questions you may have regarding your portfolio.

Outlook

Here’s what we’re watching in the month ahead:

November inflation figures. Inflation – as measured by the Consumer Price Index – came in 6.2% higher in November 2021 than November 2020. Will the pace continue, or will the Fed’s tapering help cool off prices?

Retail sales data. Despite in-person shopping volume dropping 28% this Black Friday, retail sales are expected to be 8.5% to 10.5% higher this year, according to the National Retail Federation. That’s good, as robust consumer spending implies a resilient economy. The report comes out December 15th.

Market volatility. With a double-digit year likely, expect some volatility in the final weeks of the season as investors rebalance portfolios for tax-loss harvesting or other end-of-year activities. 

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Man Who Had Heart Surgery Wins $1Mil Lottery on a ‘CashWord’ Ticket in Get-Well Card – the Winning Word was HEART

Alexander McLeish has won a $1 million prize in the Massachusetts State Lottery’s ‘Cashword’ instant ticket game—and the word that won him the scratch-off jackpot was a ‘heartfelt’ coincidence, to say the least.

Read the ‘heartwarming’ story here.

Thought for the Month

Kevin Systrom (born December 30, 1983) co-founded Instagram with Mike Krieger, one of the fastest-growing social media applications. When he resigned as CEO in 2018, Instagram had estimated 1 billion monthly active users. Facebook acquired Instagram for $1 billion in 2012.

Click to read more about Kevin Systrom.

Index Definitions

Dow Jones Industrial Average: The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.

Dow Jones U.S. Real Estate Total Return Index: The index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.

NASDAQ Composite: The NASDAQ Composite is a market-cap weighted index of all issues listed on the Nasdaq stock exchange. It is heavily weighted towards the technology sector. 

S&P 500 Bond Index: The S&P 500® Bond Index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500.

S&P 500 Consumer Discretionary: The S&P 500® Consumer Discretionary comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector.

S&P 500 Consumer Staples: The S&P 500® Consumer Staples comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector.

S&P 500 Energy: The S&P 500® Energy comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector.

S&P 500 Financials: The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector.

S&P 500 Index: The S&P 500® index is a market-cap weighted index of the largest 500 companies headquartered in the United States. The index covers approximately 80% of available market capitalization.

S&P 500 Utilities: The S&P 500® Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector.

S&P U.S. Aggregate Bond Index: The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.

S&P U.S. Treasury Bond Index: The S&P U.S. Treasury Bond Index is a broad, comprehensive, market-value weighted index that seeks to measure the performance of the U.S. Treasury Bond market.

Economic Definitions

Consumer Prices - CPI: Consumer prices (CPI) are a measure of prices paid by consumers for a market basket of consumer goods and services. The yearly (or monthly) growth rates represent the inflation rate.

PCE (headline and core): PCE deflators (or personal consumption expenditure deflators) track overall price changes for goods and services purchased by consumers. Deflators are calculated by dividing the appropriate nominal series by the corresponding real series and multiplying by 100.

Disclosures 

PLEASE NOTE: When you link to any of the websites displayed within this email, you are leaving this email and assume total responsibility and risk for your use of the website you are linking to. We make no representation as to the completeness or accuracy of any information provided at these websites.

A portion of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.

Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results. 

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect again loss. In general, the bond market is volatile; bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed-income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds or high-yield bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.

The statements provided herein are based solely on the opinions of the Advisor Group Research Team and are being provided for general information purposes only. Neither the information nor any opinion expressed constitutes an offer or a solicitation to buy or sell any securities or other financial instruments. Any opinions provided herein should not be relied upon for investment decisions and may differ from those of other departments or divisions of Advisor Group or its affiliates.

Certain information may be based on information received from sources the Advisor Group Research Team considers reliable; however, the accuracy and completeness of such information cannot be guaranteed. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial information. Any opinions, projections, forecasts and forward-looking statements presented herein reflect the judgment of the Advisor Group Research Team only as of the date of this document and are subject to change without notice. Advisor Group has no obligation to provide updates or changes to these opinions, projections, forecasts and forward-looking statements. Advisor Group is not soliciting or recommending any action based on any information in this document.

Securities and investment advisory services are offered through the firms: FSC Securities Corporation, Royal Alliance Associates, Inc., SagePoint Financial, Inc., Triad Advisors, LLC, and Woodbury Financial Services, Inc., broker-dealers, registered investment advisers, and members of FINRA and SIPC. Securities are offered through Securities America, Inc., a broker-dealer and member of FINRA and SIPC. Advisory services are offered through Arbor Point Advisors, LLC, Ladenburg Thalmann Asset Management, Inc., Securities America Advisors, Inc., and Triad Hybrid Solutions, LLC, registered investment advisers. Advisory programs offered by FSC Securities Corporation, Royal Alliance Associates, Inc., SagePoint Financial, Inc., and Woodbury Financial Services, Inc., are sponsored by VISION2020 Wealth Management Corp., an affiliated registered investment adviser. Advisor Group, Inc. is an affiliate of these firms.