Before concluding this report, I think it is appropriate to comment on the benchmark index, the S&P, and the forecast for 2022.
S&P INDEX
After the sharp falls at the end of November in which the S&P index respected its 4,500 point key support, in mid-December it tested the lows of December 3 to rebound until we meet today near all-time highs. Economic growth, business results and the good market bottom justify these levels.
As the graph below shows, we are in a historically very positive time of year for financial markets. Due to the entry of new capital flows into the Stock Markets (ie pension funds) and the beginning of the results season corresponding to 4Q21 in the middle of the month, I predict that January will be a month of increases for the Stock Markets.
FORECAST 2022
American GDP growth for 2022 is estimated between a solid 4% and 5% (3.1% on average).
2022 is presented as a year in which there are many challenges ahead, but there are reasons to be optimistic: benefits record business, solidity of banks, high household income, strength of the labor market, a lot of liquidity in the markets, overcoming the pandemic, among others.
CONCLUSIONS
- The American economy and market maintain their unstoppable recovery, and in my opinion, The current economic problems are not systemic but have a limited impact. In addition, The pandemic has driven and accelerated digital growth, leading us towards a 4th Industrial Revolution, arising a multitude of opportunities in it.
- The media has a natural tendency to use negativity to gain more attention, so Better to continue focusing on the real data and numbers.
- Regarding inflation: are you going to leave your money in the bank where the only thing you are guaranteed is that you are going to lose purchasing power, or are you going to invest in companies that are capable of growing at a rate greater than inflation and that are publishing benefits record? Of course, in this context, the stock-picking It will be even more decisive. Although an inflationary environment is complicated for consumers, companies with competitive advantages can benefit since there is greater interest in quality goods or services even if their prices are higher than average.. Stock markets have historically performed quite well in inflationary environments, and currently, it is one of the best protections against it (so are real estate assets, cryptocurrencies or collectibles).
- It is worth remembering that inflation per se Doesn't hurt markets, high interest rates do. Despite the rate increases announced by the Fed for the coming years, they will continue to be very low because we are starting from the current 0%. It must be taken into account that in the last 50 years, there has never been a recession with interest rates below 4%, so there are many years left to reach that level since the latest Fed projections suggest that it could reach a 0.9% in 2022, a 1.6% in 2023 and a 2.1% in 2024. This translates into a strong growth in the foreseeable future.
- The Stock Market is currently the best return/risk option, and this is reflected in the inflow of flows month by month. Sectoral rotation is being seen but not exits, which is very positive.
- It can be seen a lot of buying pressure on the American bond because in the US there is greater growth, higher interest rates and a stronger currency than in the rest of the world. This is allowing profitability (yield) of the 10-year American bond is remaining at a very low level (1.51% as of December 31), something tremendously bullish for the American stock market.
- Regarding the fears of a scenario of stagflation (high inflation and low growth), I would rule it out since the current inflation is preceded by the insatiable demand for economic activity. Therefore, the global economy will continue to drive growth while inflation will decline over time.
- As investors, it is essential to invest in companies that are capable of innovate and adapt to changes quickly through technology. Without a doubt, the productivity, which translates into higher margins and profits, will be a key element that will continue to drive the share price.
- The pauses or corrections that the market takes are necessary, since they allow it to grow in a more “healthy” way. My recommendation is that considering the good market background (economic cycle, business profits and liquidity in the markets) you should take advantage of the declines to buy. In fact, according to Goldman Sachs, $226 billions entered the market during the November and December declines, and $4,700 billions They are waiting to do it too.
- I would like to share the message that Jamie Dimon, president of JP Morgan, conveyed to his shareholders: “I anticipate that the current economic environment (Goldilocks) of strong growth, low interest rates, and an accommodative Fed will persist for the foreseeable future, and that's great news for the stock market. This boom “It could easily go until 2023 because all the spending could extend well into that year.”
Dear investor, these are not easy times, but we must stay strong and keep fighting.
The key to being a successful investor is to have a process that allows you to identify the winning actions and the patience and rationality to maintain them and not make bad decisions.
I will continue to put all my knowledge, experience, commitment, effort, perseverance, enthusiasm and rigor to continue beating the market and achieving the desired results.
Sincerely,
Dan Benbunan
Portfolio Manager
