On Air with Altair: 4Q 2021 Market Review Video
Want to hear Altair’s analysis of the markets, but do not have the time to read all of Altair Insight? Watch our video summary of the report and you will be caught up on our market review in 4 minutes.
STRONG ECONOMY, BUMPY MARKETS
- Markets are off to a rocky start this year.
- But this follows a very good performance for stocks in 2021, an unusually calm year for markets.
- Volatility is normal and sharp pullbacks like the one we’re seeing this month can occur even in the middle of bull markets.
- We still think 2022 is going to generate positive returns, given the healthy economy.
- Corporate earnings are strong, the labor market is recovering, consumer savings are high and spending has strengthened.
- The global recovery from the pandemic’s impact is still on track.
- We believe it will withstand challenges from COVID-19, inflation and tightening monetary policy.
INFLATION PEAKING
- Inflation has risen to a four-decade high as a result of supply-chain delays, Omicron-related economic disruptions and higher wages.
- And while inflation is unlikely to drop significantly in the first half as those challenges continue.
- Signs of the pace moderating already are evident, however.
- Several categories whose huge price jumps clearly are COVID-related and result from the reopening – such as used car and truck prices – appear to be peaking or should soon.
- We certainly acknowledge that the biggest risk for markets and the economy this year is if inflation stays higher than expected throughout.
- But we’re in the camp that anticipates it easing gradually this year as bottlenecks lessen and more workers return to the labor force.
FED TIGHTENING
- The Federal Reserve is phasing out the emergency measures it put into place during the pandemic.
- That reflects the economy’s strength and shows it no longer needs sustained monetary policy support.
- Now it’s up to the Fed to keep its planned interest-rate hikes to a pace that won’t derail the recovery or the bull market.
- Last year the Fed waited patiently for months in the expectation that the surge in inflation would fade.
- It did not but the concern is that an overly aggressive series of rate hikes now to overcompensate would be a mistake.
- Based on the statements and track records of Fed officials, we think the tightening that is likely to begin in March will be handled prudently.
- The Fed would likely pause rate hikes if the economy shows signs of strain.
OUTLOOK
- All told, the recovery from the pandemic remains a work in progress. COVID-19 is not going away any time soon, and inflation and rate hikes both pose risks. But the economy is strong and we do not view the recent market sell-off as signifying broader weakness.
You can find our full commentary here. Thank you for watching.
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