Marketpoint: Throw out the plans
2021 was a year of recovery and economic resurgence. Profit margins for the largest 500 publicly traded U.S. companies rose to an all-time high of 13.2%, more than double the 2020 margins.1 Earnings per share growth soared 70% for the same group, the largest increase in the last 20 years of tracking the data. Domestic flights, seated dinners, and hotel occupancy nearly returned to pre-pandemic levels, while consumer debit and credit transactions rose by 13% over the same period. All this good news led to major indices having another blockbuster year of 15-30% returns. Companies in previously unloved sectors—energy, real estate, and financials—were the top performers, while past market leaders, like Amazon and Netflix, returned more modest gains.
Despite the progress on reopening and corporate successes, 2022 doesn’t feel like the fresh start it is supposed to be. Winding down last year, we learned of two new COVID-19 variants, Delta and Omicron, that served as killjoys during what might otherwise have been another year of the roaring 2020s. In December, the highly contagious Omicron variant surfaced in the U.S., pushing the 7-day rolling average of positive cases to its highest level of the entire pandemic. Consumers are modifying their behavior and pulling back from engaging in daily activities that might expose them to the virus. Survey data on comfort level with everything from returning to work to dining inside to returning holiday gifts at the mall has ticked down in recent weeks, although relative to last winter, most Americans are still comfortable with most activities.2
While news of the variants is disheartening, the prior pattern of increased deaths following increased cases appears to have improved, which is a reason to celebrate. It is unclear whether this is due to better treatment options, a nearly 74% fully vaccinated U.S. adult population,3 or because of emerging evidence suggesting that Omicron doesn’t settle into a patient’s lungs. It really doesn’t matter why; the important thing is that fewer people are dying. With a lower fatality rate, we can begin to transition from a pandemic to an endemic state where we manage the disease rather than try to eradicate it.
Managing the virus means that our country will accept that people may likely get sick every year and that most will recover within a week. “Basically, as the virus increases its infectiousness, it naturally attenuates over time,” says Dr. Tetsuo Nakayama, the director of the Japanese Society of Clinical Virology. With Omicron, it appears that the virus is reducing in potency and is becoming more like the common cold. In the near term, it feels impossible to imagine any sense of normalcy, especially when the media is blasting news of flight cancellations and school closures because of illness. Yet in the long run this variant may give us a path forward.
Looking ahead, we will face new surprises in the coming months and years. In a post-pandemic era, we may experience new production delays and service interruptions as the virus spreads through certain parts of the population, sidelining the people behind the operations. Supply may continue to fall short of demand, as consumers put their savings to work on goods, not services, because they feel more comfortable watching a movie on their new flatscreen versus in person at a theater. If the imbalance between demand and supply continues, then prices will rise, and we will see more inflation. The consumer price index (CPI) increase is estimated to be 7% for the year, a significant rise from the 1-2% increases investors are used to seeing.
Alternatively, a less severe disease may mean that people are more willing to work and play like it was 2019. Maybe our country gets to a place where it is safe to treat a covid infection like a cold and not like a deadly disease. If fewer people are out of work, then supply has a chance to meet demand. If people are willing to play, then economic activity will stay focused on services, putting less pressure on the price of goods.
Meanwhile, there is another reason to think that inflation will surprise investors to the downside. Some price increases may be offset by productivity gains realized from the ongoing digital revolution. Companies are automating everything from checking in at a hotel to purchasing groceries to signing contracts. Famed investor Cathie Wood has offered a contrarian view to the widely held belief that inflation is our nation’s most prominent economic threat. “We believe that three sources of deflation will overcome the supply chain-induced inflation that is wreaking havoc on the global economy. Two sources are secular, or long term, and one is cyclical. Technologically enabled innovation is deflationary and the most potent source.”4
Whatever the situation may be, we need to throw out the old plans for 2022. It is not clear what the next year holds for investors. If we are too rigid in our beliefs, we may miss out on opportunities right in front of us. Investors who interpolate the trends of a few months to a more extended period generally stumble. Many investors paid unreasonably high prices for companies like Peloton and Zoom, believing that the pandemic would lead to accelerated growth for these covid-winners in perpetuity. Zoom and Peloton ended the year down 60-80% from their 2020 highs. Other investors looked to commodities as safe havens from inflation. Commodity indices are down 15%-30% from one-year highs, implying that investors overpaid for this protection.
Instead of trying to craft a pandemic- or inflation-proof portfolio, we look to own high-quality companies at reasonable prices. We are finding value in unexpected places. High-growth companies are becoming cheaper as investors fear the impact higher interest rates may have on price-to-earnings multiples. Luxury companies are benefiting from the belief that their products are worth more to customers as prices rise, furthering the perception of exclusivity. We continue to challenge ourselves to think differently from the crowd and stay true to our long-term approach. We are crafting portfolios that we believe will do well in a variety of outcomes over the coming years (not months), knowing that popular investing themes and beliefs don’t always come to fruition.
1 JPMorgan Guide to Markets 1Q 2022
2 Evercore ISI, Weekly Company Survey Charts, December 31, 2021
Education for the Next Generation: Introducing Obermeyer Wood’s Dollars and Sense Podcast
The transition to becoming an independent and financially responsible adult can be full of both excitement and angst. Becoming increasingly knowledgeable about personal finance during the early stages of that transition expands the number of choices one has as they progress through adulthood.
Throughout our firm's decades of financial advising, we have noticed a desire among our clients to pass successful habits along to the next generation. To provide them with a helpful resource they can use and share with their adult children, we created a podcast that aims to relay financial literacy principles in an engaging, informative way. Obermeyer Wood’s Dollars and Sense podcast provides young adults with foundational personal finance discussions intended to educate and empower the next generation.
The topics covered within the podcast range from the basics of budgeting to an introduction to the stock market. Each bite-sized episode is approximately 10 minutes or less and features a variety of our team members who present their expertise and personal experience on the topic at hand.
We hope that this podcast promotes confidence in one’s financial autonomy and encourages candid conversations about financial health among multiple generations within the family. As a reminder, we are always happy to facilitate such conversations, and we encourage you to reach out to set up a multigenerational meeting if it interests you.
You can find the podcast on Apple Podcasts and Spotify by searching for “Obermeyer Wood’s Dollars and Sense,” or find each episode under the “Blog” section of our website.
The Joy of Missing Out: Try a Digital Detox in 2022
The problem isn’t that people lack willpower; it’s that “there are a thousand people on the other side of the screen whose job it is to break down the self-regulation you have.”
--Design ethicist Tristan Harris, quoted in Adam Alter’s 2017 bestseller “Irresistible”
More quality time with family. Better sleep habits. Less anxiety about current events or your investment portfolio’s day-to-day fluctuations. Regardless of your goals, a digital detox is one way to boost your emotional and physical wellness in 2022.
Digital detoxes involve cutting the virtual cord to your devices—cellphone, iPad, computer, smart watches, and wearable fitness trackers—for a designated period of time in order to boost your wellbeing and mindfulness. These detoxes offer a much-needed way to take a break from our ever-connected global community while forming healthy new habits.
While it’s not always possible to disconnect completely due to work and personal obligations, you can still cut back on your overall tech use—and cut out the biggest time wasters. To help you get started, we’ve assembled a 15-day Digital Detox calendar that includes one small, actionable step for each day that you can tailor to your specific situation.
Before you begin, take an inventory of how much time you’re spending online, and where, on all of your various devices. As you take that inventory, also think about what content is “good” (educational information or content contributing to your wellbeing) versus “bad” (social media or other apps that don’t improve your wellbeing). As you begin to set limits on your screentime, keep in mind that the “good” content doesn’t need to be restricted for your digital detox to be effective.
Apps and digital devices are designed to draw you in and keep you there, as Harris noted. By removing temptations such as “push” notifications and adjusting your environment, you’ll make the digital detox process easier.
As the new year dawns, don’t let the fear of missing out keep you from the joy of disconnecting.
New Team Members: Mikaela Durben & Tracy Mosher
We are excited to welcome two new team members to Obermeyer Wood. Mikaela Durben joins us in our Denver office in the role of Associate, Investments, and Tracy is joining in Aspen as an Assistant, Corporate Concierge and Client Services.
Mikaela comes to us from Citigroup Corporate Bank, where she served as a Senior Analyst, providing industry expertise and strategic advisory solutions to her clients in the industrial sector. In her new role with our firm, she researches equities and supports the firm’s Investment Committee, and also works closely with our advisors on special projects for clients.
Before joining Obermeyer Wood, Tracy was the Group Sales Manager at Aspen Meadows Resort, and has an extensive background in sales and hospitality positions with various organizations. At Obermeyer Wood, she supports our team by serving as the first point of contact for our clients in the Aspen office while making sure our day-to-day operations run smoothly.
Welcome Mikaela and Tracy!
Promotions and Partnerships
We are thrilled to announce promotions and partnerships for several of our team members!
Within our client services and operations teams, Naomi Seldin is being promoted to Senior Associate, Client Services and Communications, Elise Wood is now Manager, Client Services and Compliance, and Jody Dible will be Manager, Technology and Client Services. Jody, Elise, and Naomi have worked tirelessly to serve our clients and professional partners, enhance our offerings, and streamline our business processes. We are greatly appreciative of their dedication and initiative.
Expanding our client advisory team, we are excited to announce that Kimbo Brown-Schirato and Luke Jones have both earned the title of Client Advisor. Brian Brady was awarded this title earlier this fall, in addition to his role as Director of Marketing.
On our leadership team, Dana is being promoted to Senior Vice President & Partner and will be joining our Executive Committee. We are also excited to welcome Roger Hennefeld and Bret Hirsh as the newest partners of Obermeyer Wood.
Please join us in thanking and recognizing our team members for their efforts and congratulating these individuals on their new roles.