The new year is off to a good start for investors. Of course, this reading is based on only two weeks. While historical correlations between the first few weeks of a year (or performance for the month of January itself) are high, investors should not make decisions based on these correlations. This year still has 11.5 months left to change these early results and the economics of the country and world are not particularly favorable.
For the most recent week (ended January 13) results are summarized below:
|ASSETS||7/26/2022||Last Week||This Week||Week||From 7/26|
All assets achieved positive returns for the week with Tech leading the way. The cumulative results (since the Fed began its rate-hiking cycle) are as expected with Gold leading the way and Bonds lagging.
Week to week changes are important but subject to unwarranted optimism or pessimism. These short-term reactions should not cloud the longer-term outlook. Despite the good start to this year, these are not safe markets. Inflation is still not under control and the Fed continues to talk boldly about continuing its fight to constrain it. If they follow through, look for negative pressures on the above asset categories. Gold generally performs well in an inflationary environment, but is not immune to Fed actions.
Continued higher interest rates will eventually begin to bite. Marginal investments and companies will then be exposed as sub-standard or even non sustainable. If the Fed continues to this point, will they reverse course or finish the job?
Caution in investing is always prudent. In times like these, it is especially important! Happy Days are not here again and these markets are very dangerous!
These are the opinions of a market observer and not a certified financial advisor. Do with them as you see fit.