2021 - Volatility, Stocks Struggle

2021 – VOLATILITY, FAILED RALLIES, FLAT RETURNS

NEGATIVE RETURN WITHOUT THE TOP 5

S&P Global Market Intelligence produced the following chart December 6th, 2021 outlining how narrow the market was in 2021.  The chart below outlines how the 2021 return for the NASDAQ was negative if the 5 largest companies were excluded, in many cases these 5 stocks are some of the most expensive stocks in the market.

This happened in 1999, which was a narrow market before the 2000 through 2003 bear market.  1999 represented a blow off top, many believe that 2021 was a blow off top as well.

2021 FLAT AND VOLATILE ALL STOCKS EQUALLY WEIGHTED

The Value Line Geometric Index represents the largest 1,600 in the United States, equally weighted.  This is important because an equally weighted index removes the skew that can be caused by a few mega cap stocks.  Volatility ranging between -10% and -15%, almost all of 2021’s gains have disappeared within a few weeks. 

Consistent volatility like this can cause a build up of single digit losses.  If stock returns were broad, where many stocks were moving up, we would have seen a consistent uptrend.  Instead the price gains are non existent, all rallies failed in 2021.

2021 SMALL CAPS

Small cap stocks represent the health of the domestic US economy, a flat and volatile return in my opinion signals caution by investors.  Small cap stocks traded in a wide range, recently falling -16%.  The S&P 600 Small Cap Index’s price action does not convey confidence, rather it represents indecision.

2021 FAANG+ INDEX FAILS TO GENERATE RETURNS

The leadership group over the past 10 years has been the index holding the FAANG+ stocks, the largest (and in some cases very expensive).  This index has been volatile and all the rallies have failed.

2021 GROWTH AND VALUE – FAILURE TO GENERATE A RETURN

Combining the S&P 500 Citigroup Pure Value and the S&P 500 Citigroup Pure Growth provides us with a visual that tells us how a portfolio split between those two indices has done.  We see that early losses were recovered but have been stagnant.  This price action reinforces what the other indices have told us; volatility, indecision, lack of strength and gains.

DON’T BE SURPRISED

When looking at your returns for 2021 do not be surprised if accounts are flat to slightly down.

Note: past performance is not an indication of future results and expectations might not materialize. Current investor concerns could evaporate as fast as they occurred.

LPL 1-05247013

DEFINITIONS

NASDAQ Composite Index - is the market capitalization-weighted index of over 2,500 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities.

NYSE FAANG+ Index - An index that provides exposure to 10 of today’s highly-traded tech giants.  The index launched on 09/26/2017, prior performance (09/19/2014 to 09/25/2017) is based upon backtested index calculations. Gross total return variants are shown for all of the indices in the chart. The NYSE FANG+™ Index is an equal-weighted index.

S&P 500 Citigroup Pure Growth Index - The index measures growth stocks using three factors: the ratios of book value, earnings, and sales to price.  S&P Style Indices divide the complete market capitalization of each parent index into growth and value segments.  Constituents are drawn from the S&P 500®.

S&P 500 Citigroup Pure Value Index - The S&P 500® Pure Value index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics by using a style-attractiveness-weighting scheme.

S&P 600 Small Cap Index - The S&P SmallCap 600® seeks to measure the small-cap segment of the U.S. equity market. The index is designed to track companies that meet specific inclusion criteria to ensure that they are liquid and financially viable.

Value Line Geometric Index - The Value Line Composite Index is a stock index containing approximately 1,675 companies from the NYSE, American Stock Exchange, Nasdaq, Toronto, and over-the-counter markets. The Value Line Composite Index has two forms: The Value Line Geometric Composite Index (the original equally weighted index) and the Value Line Arithmetic Composite Index (an index which mirrors changes if a portfolio held equal amounts of stock.)

IMPORTANT DISCLOSURES

This correspondence expresses the opinions and views of the author as of the date indicated and are based on the author's interpretation of the concepts therein and may be subject to change without notice.  Neither Highcroft Investment Advisors, Gerald Asplund, nor LPL Financial, has no duty or obligation to update the information contained herein. 

The information contained herein does not constitute and should not be construed as representation or solicitation for the purchase or sale of any security or related financial instruments in any jurisdiction.  To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security.  This memorandum is being made available for educational purposes only and should not be used for any other purpose.

Some of the statements may be regarded as forward-looking statements. Forward-looking statements are, by their nature, subject to uncertainty.  Forward-looking statements may include assumptions relating to future investment and economic scenarios.  When used herein, the words “anticipate”, “believe”, “could”, “estimate”, “expect”, “going forward”, “intend”, “may”, “ought to”, “plan”, “project”, “seek”, “should”, “will”, “would” and similar expressions are intended to identify forward-looking statements. These forward-looking statements reflect an opinion relating to future events and are not a guarantee of future performance or developments. Reliance on any forward-looking statements involves known and unknown risks and uncertainties. Actual results and events may differ materially from information contained in the forward-looking statemen ts as a result of a number of factors.   Accordingly, you should be prudent with your reliance on any forward-looking information or statements.

Investing involves risks including possible loss of principal.  Past performance does not guarantee future results.  Any investment or investment strategy outlined herein are not suitable for all investors, readers should conduct their own review and exercise judgment prior to investing.  Wherever there is the potential for profit there is also the possibility of loss.  No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.  International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.  The fast price swings in commodities and currencies can result in significant volatility within an investor's holdings.

To the extent you are receiving investment advice from a separately registered independent investment advisor or broker, please note that Highcroft Investment Advisors, Gerald Asplund, and LPL Financial are not an affiliate of and makes no representation with respect to such entity.

Certain information contained herein concerning economic trends, Fundamentals, and/or Technical analysis, and performance is based on or derived from information provided by independent third-party sources.  The economic forecasts set forth in this material may not develop as predicted. 

Technical analysis is generally based on the study of price movement, volume, sentiment, and trading flows in an attempt to identify and project price trends. Technical analysis does not consider the fundamentals of the underlying corporate issuer.  

The sources from which information has been obtained is assumed to be reliable; the accuracy of such information is not guaranteed and the accuracy and completeness of such information has not been independently verified.

This report, including the information contained herein, has been prepared exclusively for the use of Highcroft Investment Advisors clients, and may not be copied, reproduced, redistributed, republished, or posted in whole or in part, in any form without the prior written consent of Highcroft Investment Advisors.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.  Investing in the index would require investors purchase an investment product, which would involve fees and expenses.

 

ABOUT US

The advisors at Highcroft Investment Advisors provide retirement planning, investment management, financial planning, fiduciary investment management, and lifetime income planning. Certified Financial Planner. Working with business owners, individuals, and wealthy families near Wayzata, Minnetonka, Plymouth, Orono, Minnetrista, and Minneapolis Minnesota (55402, 55391, 55447, 55364, 55428). 

The advisors at Highcroft Investment Advisors serve as a 3(21) and 3(38) Investment Fiduciary and fiduciary for labor union supplemental 401(k) and pension plans and corporate 401(k) plans.  The advisors at Highcroft work with the union's counsel, recordkeeper, administrator, and the plan's trustees.  United Association, Plumbers, Pipefitters, Steamfitters, IBEW, and Carpenters.  Serving Wisconsin and Minnesota.  401(k) investment advisory services provided through LPL Financial's corporate RIA - offering 3(21) and 3(38) services.

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