Living in a Box
Long time readers know my usual observation that valuations of Corporate America, as measured by the S&P 500, don’t trend sideways and then drop. Instead, they just drop!
In the box below you can observe the “trend box” of valuations since last summer until last week. Prices pretty much define the lower limit and upper limit of the current “trade range”.
It is not at all uncommon for price to jump up above the box only to come back down to retest the middle or lower levels before starting the next trend higher.
No one knows the future, yet it would be reasonable to expect the “base building” for the next move upward to continue well past the first quarter earnings reports.
Speaking of earnings, Refinitiv Research estimated full-year 2022 earnings for the S&P 500 to be $216.14 in their January 2022 report. Depending on whose research you choose to read I have seen estimates for 2022 as high as $237.50.
This would make sense based on the very under-reported reality that the U.S. Gross Domestic product (GDP) is estimated to be $25 trillion in 2022, per the Atlanta Fed GDP Now report. If this comes to fruition, it will be an approximate, increase in all the goods and services we produce as a country of 19%, up from $21 trillion as the word Covid was introduced to our vocabulary, just tow years ago.
The strong economic backdrop supports higher valuations for Corporate America and suggests valuations are likely to remain in the box until the earnings reality becomes clearer.
At the WSG, we continue to believe inflation will remain hot. Thus, we have our client asset allocations thoughtfully positioned for that. Ownership in Corporate America has historically been considered a hedge against inflation, as have the metals, soft commodities, energy, technology and healthcare, which is why all have been included in our asset allocations for over a year and nearing eighteen months.
If there is someone in your work, social circle or family that would be interested in a “second opinion” around their investment allocation and strategy, feel welcome to share our contact information.
As always, our team and I are available to discuss this concept with you. Just call, email or stop by the office and say “Hi”!
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Investing involves risk. Loss, including loss of principal, may occur. No strategy assures success or protects against loss. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.