Macroeconomic Outlook – The Covid-19 pandemic and resulting economic shutdown quickly threw the global economy into a deep recession.  Within a very short period, economic growth was in a steep decline, business and consumer confidence was at all-time lows, and we faced a steep deflationary environment.  Monetary and fiscal policy authorities deployed massive accommodative policies to help bridge the economic gap to a post-Covid world, and we quickly started a new economic recovery.  We do not want to continuously rehash the events that unfolded in 2020 and 2021, but we believe it is important to understand the transition from one stage of the economic cycle to another which happened quicker than normal.  We think this is an incredibly important factor to note as, looking forward, we believe we are once again likely to be looking towards a transition in the economic cycle during the next 12 to 24 months – from Mid to Late cycle. 

Equity Market Outlook

Source: Bloomberg. Data as of December 31, 2021

2021 was a year of resilience for equity markets.  Amidst some of the highest uncertainty, we have seen since 2008, major equity indexes posted strong returns with the exception of Emerging Markets.  For the third year in a row, the S&P 500 climbed more than 15%.  While 2020 generated large dispersion in returns between styles, sectors, and themes, 2021 saw a more united rise across approaches to equity investing.  Our outlook for the next 12 to 18 months remains constructive for equities, but less so than recent periods.  We believe relative valuations, the lack of alternatives, and an expected rise in profits point to long-term upside for equity prices.  However, we are taking a more defensive approach to equity exposure as we mature in the economic cycle, monetary policy measures become more restrictive and absolute valuations remain very high.  We delineate these viewpoints below in greater detail:

Source: Bloomberg. Data as of December 31, 2021

Fixed-Income Market Outlook

2021 was a historically bad year for bonds.  The Ten-year Treasury yield ended the year up over 60 basis points.  This yield was the biggest annual rise since 2013.  Yields rose across the curve and especially at the short end.  The Bloomberg Barclays Agg returned -1.61% in 2021.  Our stance going in to 2021 was to be underweight fixed income due to low real yields, rising economic growth and inflation, and range-bound yields.  Going into 2022, we expect to remain underweight fixed income. 

Source: Bloomberg as of January 6, 2022

Asset Class Views

All indexes are unmanaged, and an individual cannot invest directly in an index. Index returns do not include fees or expenses.

The Conference Board Leading Economic Index® (LEI) for the U.S. – The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The leading, coincident, and lagging economic indexes are essentially composite averages of several individual leading, coincident, or lagging indicators. They are constructed to summarize and reveal common turning point patterns in economic data in a clearer and more convincing manner than any individual component – primarily because they smooth out some of the volatility of individual components.

The ten components of The Conference Board Leading Economic Index® for the U.S. include:

•                  Average weekly hours, manufacturing

•                  Average weekly initial claims for unemployment insurance

•                  Manufacturers’ new orders, consumer goods and materials

•                  ISM® Index of New Orders

•                  Manufacturers’ new orders, nondefense capital goods, excluding aircraft orders

•                  Building permits, new private housing units

•                  Stock prices, 500 common stocks

•                  Leading Credit Index™

•                  Interest rate spread, 10-year Treasury bonds less federal funds

•                  Average consumer expectations for business conditions

Gross Domestic Product (GDP) is the monetary value of all finished goods and services made within a country during a specific period.

The 10-year Treasury Yield is used as a proxy for mortgage rates. It’s also seen as a sign of investor sentiment about the economy.

The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. The index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. The S&P 500 Index focuses on the large-cap segment of the market, however, since it includes a significant portion of the total value of the market, it also represents the market.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.

Fed Funds Rate is the interest rate U.S. banks charge each other to lend funds overnight

The velocity of money is a measure of the number of times that the average unit of currency is used to purchase goods and services within a given time period.

Any charts, graphs, and descriptions of investment and market history and performance contained herein are not a representation that such history or performance will continue in the future or that any investment scenario or performance will even be similar to such chart, graph, or description.

The opinions expressed in this commentary should not be considered as fact. All opinions expressed are as of the published date and are subject to change. This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure they obtain all available relevant information before making any investment. Any forecast, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given, and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results. Diversification does not protect against loss of principal.

Acumen Wealth Advisors, LLC® is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

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