Market Update February 2022 – Will The Market Rhyme???


Whether or not it was Mark Twain who said, “History never repeats itself, but it often rhymes,” the sentiment seems to be well worth considering in today’s capital markets.  2022 has started off with a thud and, not surprisingly, raising concerns of … well just about everything.  And now, with the S&P 500 Index up over 100% from its March 2020 low, it would be concerning if investors weren’t contemplating what may lie ahead.  Yet certain conditions have now developed that are reminiscent of economic and political concerns that investors wrestled with less than ten years ago following the “Great Financial Crisis” (GFC) of 2007-2008. 

While the US stock market bottomed in early 2009 there remained no shortage of doubting if/how the global economy could recover.  Throughout 2009-2012 a number of obstacles roiled markets only to create further uncertainty of recovery.  During this time, global central banks had worked to provide stability amongst the various crises’ that continued to pop up, including traditional and non-traditional policies. As 2013 approached, the optimists finally saw some semblance of receding volatility and markets did indeed put in a healthy, less volatile uptrend into the Fall of 2014.  And at that time a tension arose with improving economic strength pitted against a course of uncertainties, eventually resulting in a minor selloff.  Of course, in the midst of the stress, “minor” was not yet for sure.

What had caught investors’ attention during this time:

  • Optimism of stronger GDP growth was rising, which sounds positive. But this led to concerns of market health, should economic improvement result in various stimulus programs being discontinued.
  • The Fed was tightening monetary policy by winding down their bond-buying program. In particular, they formally announced in October of 2014 their intentions to discontinue bond purchases, which had been a significant part of the GFC recovery policies.
  • Global health concerns had heated up due to the Ebola outbreak, with the first confirmed US case identified in October 2014.
  • Rising global political tensions in the Middle East and also between Russia and Ukraine.

Sound familiar? Today’s headlines include:

  • Again, first a positive: Rising optimism of stronger GDP growth, but…
  • The Fed has announced plans to begin unwinding accommodative monetary policy in the coming months by systematically raising interest rates.
  • Global health concerns persist due to the COVID-19 pandemic (although it looks to be improving).
  • Rising global political tensions between Russia and Ukraine, the conclusion of which remains unclear.

Admittedly, a host of variables may make 2014 irrelevant as a template for today’s markets.  And, at best, this is only one input for investors to use amongst the breadth of the global economy and markets.  Yet, it would seem misguided to ignore the uncommon commonalities that the two periods share.  So, how did the story play out?  The market recovered in 2014 with the S&P 500 Index moving higher through the spring of 2015, making a new all-time high, albeit with heightened volatility.

Should the parallels continue to “rhyme” further into 2022?  We will see.  But all expectations need to be held loosely when dealing with health, wealth, and politics.

CHART OF INTEREST: Will The Market Rhyme???

Yes, history may not repeat itself, but the rhyming often proves to be true. Following up on this month’s Capital Markets section, a “picture” charting the similarities of the two periods described may spare the reader “a thousand words”. 

The chart below parallels the S&P 500 Index from 2013 through mid-2015 with that of mid-April 2020 through February 3, 2022.  The two periods are scaled similarly and aligned with the S&P 500 Index highs in September of 2014 and in January 2022. 

In 2013 and the period of December 2020 through August 2021, the respective market advances were orderly and with relatively low volatility.  Then, in 2014, the market responded to tightening monetary policy due to the end of the Federal Reserve’s bond-buying program, investors read it as a risk to economic strength and asset prices and volatility picked up.  Likewise, following a relatively stable period, volatility picked up in September 2021 as the market again responded negatively to improving economic news and   worries of possible tightening of monetary policy,  i.e., would the Federal Reserve raise interest rates?  Add to the concern of Fed actions the legitimate questions regarding global health and political tensions and the two market eras appear to have been digesting similar concerns following similar bullish conditions in the equity markets.

Certainly, there are a whole host of additional variables which will impact where markets go from here.  But the similar conditions of economic growth, global health concerns, political tensions, and monetary policy in 2014, as now in 2022, suggests that these four significant factors should not be ignored.  While each of these factors play an important role in shaping the views of investors, the experience in 2014 suggests that the recent drop in equities due to the potential of tightening monetary policy alone does not necessarily result in a long-lasting market slide.  But it may very well result in a rotation to new leadership.

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