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Weekly Chartbook

By: Aaron Lang - Portfolio Analyst

January 4, 2022

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Market Performance (YTD)


Source: YCharts
Disclaimer: Past performance is no guarantee of future performance

The Good News

Job openings remain historically high

And here are the reasons why

And the quits rate remains historically high, too

And households remain very healthy

The Mixed News

Supply chain pressures remain high but could be easing

The Bad News

OER has yet to make a huge impact on inflation.. think that’s coming soon

The State Of The Market

A good summary of 2021 

And the main story of the equity markets in 2021.. earnings growth 

And margins were the biggest contributor to the strong earnings.. inflationary pressures?

And here are the leading contributors to the strong year for the S&P 500

And here’s how the year faired compared to prior years

And how has the market typically performed after a really good year? Pretty well

And despite falling savings rates, there’s still a lot of money out there

But one negative going into the new year, margin expectations seem to be flattening

And lastly, be weary of short-term forecasts

Here’s a snippet from Howard Marks on the matter

“Obviously, nobody could have been expected to have predicted the pandemic.  Ditto for the full success of the policy response or the timing and extent of the consequent market bounce.  But Sommer shared longer-term data from Paul Hickey, co-founder of Bespoke Investment Group, which is more meaningful.  I’ll mostly use Sommer’s words to convey the facts:

  • Since 2000, the median analyst forecast has called for an average yearly return on the S&P 500 of 9.5%, whereas the actual average gain was 6.0%.  You might say, “not bad, only off by 3.5 percentage points.”  Or you might say, “terrible – the forecasters overestimated the average gain by 58% (9.5/6.0 – 1).”
  • “Each December since 2000, the median forecast never called for a stock market decline over the course of the following calendar year . . .” (emphasis added).  And yet the stock market lost money in six of those years.
  • “In 2018, for example, the market fell 6.9 percent, though the forecasters said it would rise 7.5 percent, a spread of 14.4 percentage points.  In 2002, the forecast called for an increase of 12.5 percent, but stocks fell 23.3 percent, a spread of almost 36 percentage points.”
  • “All told, when gaps like that are taken into account, the median Wall Street forecast from 2000 through 2020 missed its target by an average 12.9* percentage points — which was more than double the [6.0%] actual average annual performance of the stock market.  Year after year, these forecasts are about as accurate as those of a weatherman who always calls for balmy sunshine in a city where it rains or snows about 30 percent of the time. Some forecasts!”  (* What accounts for the difference between the average error of 3.5 percentage points cited in the first bullet point and this 12.9?  I assume the latter to be the average of the “absolute value” of the error.  When you think in terms of absolute value, being too high by 3% in year one and then too low by 2% in year two means the absolute values of the errors add up to 5%, rather than netting out to only 1%.)

The bottom line is that hundreds or perhaps thousands of people make their living as professional market forecasters, despite the fact that the median forecast is of no value: wrong on average, positive in good years and bad, and way off target when an accurate forecast would have been most profitable.”

Source: Howard Marks (Oaktree)

Charts Of The Week

Disclosure

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