ECONOMIC IMPACT. Friday's payroll report conflicted wildly with another report from ADP in that one was very strong the other very weak for January month. Regardless, rates spiked to 2 year highs as continued fear the economy needs to dramatically slow to slow inflation. In our view the risk of a recession or close to it is very real as inflation may remain elevated the next couple of months leading the Federal Reserve to take strong action. Markets HAVE NOT fully discounted the dramatic economic slow that may be sustain for some time. Most economic forecasts for 2022 are still for 3% plus or more GDP growth which in our view is wishful thinking.
INVESTMENT IMPACT. For the week we added hedges to protect against market downside dramatically reducing exposure to equity markets across ALL model portfolios. Until such time as the market capitulates on the slow down in growth through a fall in commodity prices, falling long term interest rates as well as a fall in other asset prices thereby reducing concern over interest rate increases markets maybe at risk. Our over weight in health care continues despite shares being under pressure as our assumption is that these companies maybe shielded by sustained economic weakness as covid-19 wanes (which it clearly is via lower cases).
Our model portfolio performance has been updated on our website as of 1/31/22.
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