Investment Outlook: Fourth Quarter 2021 - Market Recap

It’s all a matter of perspective.  Looking at the quarter in its entirety would reveal one of the more volatile periods of the year, with near-daily sector rotations and dramatic headline reactions.  However, if you were to simply check in on the final days of the quarter, you’d see respectable gains across the major averages with a relatively uneventful finish to 2021.  Which perspective you choose to focus on usually comes down to your individual objectives.  If your goal is to play the many ups and downs in the market, it might make sense to pay greater attention to the day-to-day.  If you’re in it for the long-term, this interim noise often yields little more than a headache. 

The matter of perspective extends well beyond one’s interpretation of the market, it is often the driving force behind its movements.  There were two big headlines this quarter, inflation and COVID (specifically, the rapidly-spreading Omicron variant).  How investors chose to react to these specific events determined where and how their money flowed. 

The elevated levels of inflation we’ve seen throughout this year have turned out to be more sticky than originally anticipated, causing many to believe more aggressive action from the Federal Reserve may be warranted.  This means higher interest rates, and as the fear of rising rates took hold, money began to rotate out of companies with profit expectations still several years down the road in search of those making money right now.   The idea here is higher interest rates make money received now more valuable than money to be received in the future.

Next, we (still) have COVID.  Although it’s been around for quite a while now, it remains a key issue for the markets.  Any time we see a material spike in cases, or the emergence of a new variant, traders go to work trying to anticipate the potential impacts to individual sectors and the economy as a whole.  The rotation out of anything related to travel or human interaction, into all things digital or material has become almost routine. 

The matter of perspective relevant in both these situations is that of future vs. present.  You can choose to focus on what could happen in the future, or you could focus on what is going on right now.  The market by nature is impulsive.  As new information becomes available it is quickly digested and acted upon to get ahead of future events.  But as we all know, the future is extremely difficult to predict, and trying to do so can lead to the types of volatility we saw throughout much of the quarter.  However, after the initial volatility is absorbed, attention typically shifts back to the present, to what can actually be observed.  This lens reveals an economy that, despite its many challenges, remains in pretty good shape.  We don’t know what the next week, month, or even year might hold but we remain confident in our strategy of finding great companies and sticking with them for the long term.

From all of us at Beese Fulmer, here’s to a healthy and prosperous 2022!