What Investors Should be Thankful for in 2022
Contributed by Doug Walters, Max Berkovich, David Lemire,
Each year around Thanksgiving and the holidays, we like to publish our list of things for which investors should be thankful. We find this exercise particularly useful in a year like 2022, which has, at times, tested the nerves of investors. So here it goes!
- Thank you, Q4 bounce!… the equity and bond returns this year would have been much worse off without you.
- Thank you, Value… you were the best-performing equity factor and helped multifactor funds outperform.
- Thank you, Gold… you provided some much-needed portfolio ballast in a year when fixed income struggled.
- Thank you, COLA… for investors receiving Social Security, your recent increases will put some extra cash in their pocket.
- Thank you, consumers… the Fed may be frustrated that you keep spending, but it’s great that the buoyant job market is keeping your confidence high!
- Thank you, tax losses… we were able to harvest you this year, turning lemons into lemonade.
- Thank you, volatility… you created attractive opportunities for some sophisticated portfolio rebalancing.
- Thank you, zero trade commissions… you make loss harvesting and rebalancing all the more lucrative.
- Thank you, NFT art… your collapse this year has opened the opportunity to put the fun back in fungible.
- Thank you, SBF and FTX… for teaching the next generation of savers and investors the difference between speculating and investing. They’ll be better off for it!
Thank you, future… with asset prices down, we are optimistic that you will eventually bring us better returns!
But most of all
- Thank you, clients of Strategic and readers of Insights… the continued trust and confidence you place in the Strategic team is much appreciated. We are thankful to have you as part of our community!
Stocks ended up modestly in a week full of economic newsflow (as well as the US progressing to the knockout round of the World Cup). The Fed Chairman telegraphed a smaller rate increase in December, and non-farm payrolls came in hotter than expected. But it is the fall in PCE inflation that we focus on today.
- Historically this has been the Fed’s preferred measure of inflation as it is broader and more timely than CPI inflation.
- PCE inflation fell year-on-year in October from 6.3% to 6.0%. Core inflation (ex-food and energy) fell from 5.2% to 5.0%.
- Both of these measures are in line with consensus expectations. That in itself is a bit of a headline, given how unpredictable inflation readings have been recently.
- Some moderation in inflation is good news for the Fed and will give them some confidence in slowing the rate of increase in December.
- The challenge for the Fed is knowing when to fully take their foot off the economic brake, as the impact of their rate increases takes time to influence consumer behavior.
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