QUARTERLY INVESTMENT UPDATE Q1 2022

January 17, 2022

Moving into a new calendar year is an important time of self-reflection for many of us.

We look back to reminisce on our successes and challenges from the last year, and also set new goals and expectations for ourselves. Market analysts go through a similar exercise, dissecting the causes and impacts of market movements from the past year and identifying emerging headwinds and opportunities as we look forward. Most of these market playbooks for 2022 seem to have just two perplexing factors controlling the narrative: pandemic related headwinds and the Fed’s response to inflation.

Last year we continued to see COVID send shockwaves through the market. The Delta and Omicron variants contributed to labor shortages across industries and led to yet another series of rolling lockdowns in many regions globally. Supply chain bottlenecks persisted into the new year and were a major source of anxiety for last minute holiday shoppers like me. While this may have painted a gloomy picture for investment returns, the market shrugged off these issues and maintained a sense of optimism with the S&P 500 up over 28% for the year.

The availability of vaccine boosters in conjunction with the comparatively mild nature of the Omicron variant has medical experts hopeful that we are nearing the end of this more severe, uncontrolled phase of the pandemic. 2022 will likely still have its fair share of COVID headlines, but it appears that we are slowly learning how to strike a balance between mitigating risks to prevent the spread and getting back to work to keep the economy moving forward.

Inflation and monetary policy proved divisive among market participants last year. In their December meeting, the Fed began tapering its bond repurchase program and signaled at least 4 rate hikes for 2022, but many worry that these subtle moves may not be enough to combat rising inflation. This uncertainty was reflected in bond performance for 2021, with the asset class ending the year with slightly negative returns. Bond prices fall as yields rise, so we expect this trend to continue into 2022 as the Fed fights inflationary concerns and tightens monetary policy.

As it relates to your portfolio, we are keeping a close eye on fixed income markets and favoring assets like floating-rate bonds, TIPS, and nontraditional bond funds that tend to outperform in inflationary environments. On the equity side, we are prepared for continued volatility as the Fed grapples with inflation and raises rates. Our top priority is to maintain portfolio diversification and provide access to a large basket of asset classes to provide an optimal mix of market upside potential and downside protection to help you achieve your long-term goals.

We are grateful to have wonderful clients like you alongside us and are excited to see you in the new year!

JAKE FROMM | LEAD INVESTMENT ANALYST

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