Transcript:
Tom Vaughan:
Hello, everybody, welcome to Wednesday, the S&P 500 was up 1.6%. Today, green shirt day, the Dow was up 1.1%, and the NASDAQ was up 2.2%. We were really led today by some of the big tech names and videos up seven and a half – Apple is up 2.9%. Really, really good day actually all together. So what happened today, as far as what happened with the Federal Reserve, is that they just met expectations. They told us what we already knew, but they didn’t add any additional information in terms of them getting more aggressive on trying to fight inflation. And that’s what the market reacted well to. Because, you know, the markets been falling Monday and Tuesday, we got that really high, you know, inflation number on wholesale prices, I think there was some fear that the Federal Reserve would have to come out with additional, you know, restrictions. And they stuck to their guns in terms of you know, what they talked about before, which was, you know, cutting back the bond purchases faster, so done at the end of March instead of at the end of June. And then maybe doing two or three rate cuts with a few more people now looking at the possibility of three rate cuts for sorry, for next year.
And, and so, again, here’s my outlook on this, if you go back to World War II, and you have a year where you made over 20%, like we’re going to make here in 2021, the next year tends to be pretty good, the average rate of return for a year after that is 10.4%. So not 20 plus, but not bad, and 80% of the time, and when you have a 20% year, the next year is positive, so that’s good, too. And so if you look at what’s going on, the Fed is cutting back on bonds, so that could be a negative to the economy. But if the economy’s hot, which it has been, that can also be a positive, because we’re starting to pull some of the stimulus out, and maybe fighting inflation a little bit faster, which I think is a good thing. And again, they’re only doing this because the economy is hot, it’s not because they’re, you know, the economy is falling apart.
If they raise rates three times instead of two, or instead of one, really, that shouldn’t have a big impact on the stock market for 2022. Only because, you know, a three quarter percent, you know, they would raise it a quarter every time. But if that’s the end of 2022, or three quarter percent of the fed fund rate, that’s not going to matter to the stock market, that’s not a very competitive rate. And still banks aren’t going to be paying that much and people still be buying into the stock market. I really think it matters in terms of you know, if inflation gets more out of control, you know, how does the how does the Fed deal with that they have to get more aggressive? It does, you know, what’s 2023 look like those types of things. So, you know, the market does look forward, you know, that six to 18 months.
You know, part of that is playing into this picture right now, I think you want to focus on stocks that have good earnings, what we are seeing is companies that basically don’t have earnings, they’re multiple times their sales is what people look at us, multiple times earnings, those guys are struggling, even today, they came up some but they’ve been getting hit pretty hard. So you know, a company like Apple has lots of revenues and lots of cash and loyalty, they’re buying back their own stock. There’s some pieces in there that are really fantastic. As far as that goes. I do think that’ll be kind of the theme for next year. And to a certain degree, it was the theme for this year, companies that had earnings. And not companies that didn’t have earnings, which was sort of the theme last year, we had an awful lot of, you know, companies selling for 100 times their sales didn’t even have earnings. So those have been hit pretty hard this year, a lot of them are down, you know, 20 to 60%. So want to stick in that kind of big cap area, I still think you want to have a huge exposure to the overall stock market, which is what we have in our portfolios because you can’t tell what’s going to happen.
I was very impressed with the Federal Reserve’s Chairman’s speech about, you know, kind of the flexibility that they expect to have, because, you know, here’s what it looks like today. But if something happens with a big variant that comes along, that slows things down, you know, they’re gonna have to respond to that. So this will be a very, you know, interesting timeframe to see how this plays out. I would expect next year to be a bit more rocky than we saw this year. Because of these unknowns. Again, you know, there’s no playbook for pandemic just kind of how it works, but pretty excited about what happened today. Look forward to seeing what’s gonna happen tomorrow. Thank you very much.