Market Trends 2022 – Q1

Weight of the Evidence

Tanglewood Legacy Advisors continuously researches and
monitors economic and market trends on behalf of the families we
serve. The current weight of the evidence points to continued
worldwide economic growth in 2022, albeit at a somewhat slower
pace than in 2021.

The recovery, especially in the U.S., after the COVID-induced
recession of 2020 has been remarkable. That recovery was fortified
by a combination of math and science. The math was the
unprecedented reaction by central bankers and policy-makers to
flood the economy with cash, and the science was the
extraordinarily fast development and distribution of vaccines.

Back in 2019, we suggested that after many years of below-trend
inflation, we would begin to see a tick back up to the 2.5-3%
inflation range. We referred to that as “reflation.” We all know now
that inflation in 2021 overshot that modest trend-line range due to
the combination of government stimulus, loose monetary policy by
central banks, and COVID-induced supply chain disruptions. Now
with A) congressional gridlock, B) the Fed’s stated intention to
begin tapering and C) improvements in the supply-chain ecosystem,
especially in the U.S., it is now most likely that we have seen the
the cyclical peak of inflation. Today’s inflation pressures are likely to
steadily decrease over the next 12-18 months and will eventually
recede to trendline inflation.

2021 saw a dozen stocks dominate the U.S. equity markets. They
were so dominant that any portfolio that did not own these 12, may
have actually lost money in this current bull market leg. Continued
economic and earnings growth in 2022 should help broaden the
market expansion to more companies.

Savers know that they are earning almost nothing in their bank and
money market accounts. What they might not realize is that their
real return (after inflation) is actually negative. Strategic, limited
use of alternative investments that have historically acted as a way
to diversify interest rate risk without taking on the volatility of
stocks are likely to become more accepted as an alternative to
bonds.