MARKET COMMENTARY
Hilltop Wealth Solutions’ Investment Committee held its monthly meeting on Tuesday, February 2, to consider portfolio adjustments based on analysis provided by our partners at Helios Quantitative Research, LLC. The committee’s deliberations ensure that your assets are optimally invested per your customized financial plan.
This report serves as an overview of our portfolio implementation strategies for February 2022.
As we continue to evolve using the best available data to our advantage, we may make multiple updates to portfolios throughout the month — instead of only one adjustment.
Thank you for the assets you have placed with us. We value your trust, and we continue to work diligently to meet your investment needs by combining cutting-edge research and datasets from Helios with our advisors’ knowledge about your personal needs.Also, to ensure your portfolio most effectively serves your goals and reflects your risk tolerance, we are always available to answer any questions you may have.
MARKET UPDATE
Stocks ended January lower as investors dealt with concerns over inflation, the prospects of rising interest rates, and the pace of global economic recovery. Not since March 2020 has the S&P 500 fallen as steeply as it did last month. The Russell 1000 Growth also fell over 8.5 percent, and the Russell 2000 Growth fell over 13 percent. Global markets were also down, though emerging markets outperformed on a relative basis.
Technology shares were hit particularly hard as investors feared higher rates would expose lofty valuations and raise operating costs. However, this notion has been rethought as February begins.
January also wasn’t a straight trip downward. The start of the fourth-quarter corporate earnings season has been positive. S&P 500 companies are beating analysts’ earnings expectations — but they are doing so by a lower margin than over the past year. While earnings are mainly going back to normal, supply-chain issues and inflationary pressures have taken a toll.
While the Federal Reserve kept interest rates steady at the end of its January meeting, policymakers say they are ready to raise interest rates in March. They also didn’t rule out moving at every meeting to tackle the highest inflation in decades.
The announcement came as the Consumer Price Index continued to climb — putting another multi-decade high in the books with a 7 percent annual increase.
HILLTOP ADVISORS’ PERSPECTIVE
Inflation spooked the market in January, with stocks having a lousy start to the year. As the Federal Reserve pivoted from their reading of inflation as “transitory” and acknowledged the surge has proven larger and more persistent than expected — it seems to have left investors feeling uneasy heading into 2022.
In January, technology stocks were particularly hard hit, and many feared the sector was in a downward spiral. We don’t think so and see favorable conditions ahead. Strong earnings last week from Apple support the market, and we believe the tailwinds that helped propel tech stocks higher in 2021 have just switched direction.
We also think many discretionary stocks tied to the economy’s reopening will continue to recover. Also, longer-term trends toward e-commerce and electric vehicles are likely to support this sector’s growth.
While the link between January trading and the rest of the year is relatively weak, we expect markets to remain volatile as investors price in prospects for higher interest rates. However, it’s important to note that its recent swings have been only slightly larger than usual. The average high-low spread over the past 60 years — the difference between the highest point of the day and the lowest point — has been 1.4 percent. So far this year, that measure is 1.8 percent.
We also expect the markets to respond to how companies contend with growth and supply chain disruptions. Yet, there are signs that things have started to normalize. A gauge of constraints produced by the Federal Reserve Bank of New York shows that pressures reached their highest point in October. The index based on 27 variables, including international shipping rates and air freight costs, ticked slightly lower in November and December. So, it seems likely that at least some supply chain issues will soon resolve themselves.
We expect the equity rally to resume and still predict the market will end 2022 higher. Buoying our optimism is that corporate profits keep climbing. It’s been a solid earnings season thus far, with nearly 80 percent of S&P 500 companies that have posted results beating bottom-line expectations. So, last month’s market activity doesn’t signal an end to the bull market by any means.
And as interest rates are set to increase, we should be mindful they are coming off levels that were not far from historic lows. That means there’s some room for higher rates without hurting the economy — as long as the Federal Reserve can manage the process in a way that prolongs growth and keeps unemployment low.
DISCLOSURE
This update is not intended to be relied upon as forecast, research, or investment advice, and is not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment opinions expressed are as of the date noted and may change as subsequent conditions vary. The information and opinions contained in this letter are derived from proprietary and nonproprietary sources deemed by Hilltop Wealth Solutions to be reliable. The letter may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecast made will materialize. Additional information about Hilltop Wealth Solutions is available in its current disclosure documents, Form ADV, Form ADV Part 2A Brochure, and Client Relationship Summary Report which are accessible online via the SEC’s Investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using SEC # 801-115255. Hilltop Wealth Solutions is neither an attorney nor an accountant, and no portion of this content should be interpreted as legal, accounting, or tax advice.
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