By Kris Katarski, Senior Consultant, Segal Marco Advisors
Despite the headwinds lingering from the ongoing COVID-19 pandemic, 2021 saw the US economy experience GDP growth of 5.7% for the full year, the best since 1984. However, this was met with inflation (as measured by the Consumer Price Index) of 7.0%, its highest calendar year change since 1981. Notwithstanding these inflation concerns that came to the fore during the summer, investors still witnessed yet another year of strong US equity markets, with the S&P 500 Index gaining 28.7% (its 12th-best calendar year since the mid-1920s, only a year after returning 18.4% in the tumultuous year that was 2020). Even with some positive dips along the way, interest rates ended 2021 higher resulting in poor returns from traditional bond portfolios. Volatility returned in the back half of the year, but even with these market gyrations, diversified portfolios posted strong absolute gains for the year. The TPF Balanced Fund gained 12.2% (following gains of 15.4% in 2020 and 20.5% in 2019).
After turning the calendar over on New Year’s Eve, what has 2022 greeted us with? Our dear old nemesis COVID is still here. Equity markets have delivered seemingly incredible amounts of volatility, highlighted by several days where the blue-chip Dow Jones Industrial Average turned intra-day losses of well over 500 points into solid gains by the time markets closed. Interest rates have moved sharply from one day to the next, bringing no respite to the legion of bond investors. Inflation continues to lead evening headlines and remain front-and-center in the mind of seemingly every investor, company, and consumer alike. And last but not least, there’s the ever-present threat of a Russian invasion of neighboring Ukraine, just one of several geopolitical risks that at any point could rock the global economy (and markets too).
As we look ahead, none of this shows any sign of abating. The U.S. Federal Reserve clarified their intentions to raise interest rates, portending more pain for bond investors as the Fed appears to be playing catch-up to several months of high inflation data. Adding to the misery is the impact that rising long-term interest rates has taken on many of the once high-flying growth stocks that led the market across 2020 and 2021. Plummeting names in sectors such as Information Technology have some battered investors asking “when will it stop?” However, the weary value investors sit with smiles on their faces, optimistic that they might finally have their (extended) day in the sun after more than a decade in the shadow of their growth peers.
At times like this it’s easy to understand investors asking “what should I do?” Here at Texas Presbyterian Foundation, we continue to believe in the benefits of diversification to help our partners navigate these volatile and uncertain times. Please check out our latest webinar where you can learn more about TPF and our approach to investing, including how we build diversified portfolios like the TPF Balanced Fund.