provided to The Santiva Chronicle
The Sanibel Captiva Trust Company recently hosted the 2022 Economic Outlook at Big Arts, their first in-person event in two years. S. Albert D. Hanser, Founder and Chairman of The Trust Company welcomed more than 60 clients and guests attending the in-person event at the Christensen Performance Hall while it was also live-streamed for guests who preferred to watch from home or out of the area.
Newly appointed Sanibel Office President, Jeffrey A. Muddell, CFP also greeted the group and spoke about his new role, as well as imminent new hires to the Sanibel team to continue a quality client experience.
Senior Portfolio Managers, Edwin C. Ciskowski, CPA and Gary W. Dyer, CFA served as the day’s key presenters. Ciskowski began by discussing the 2021 market results across various asset classes.
“It was another very strong year for U.S. stock markets overall,” said Ciskowski, “and contrary to the year prior (2020) where we saw larger differences between growth and value stocks, there was much less divergence among different areas of large cap U.S. stocks.”
Ciskowski addressed the perception among some investors that the stock market is expensive or the stock market is only doing well because of Fed accommodation and government spending. He outlined the rational and irrational responses to this perception:
Rational Responses –
Being discriminate and discerning when making investment choices.
Control what we can and avoid unnecessary risks.
Irrational Responses –
Avoiding capital markets entirely.
Waiting for the perfect economic backdrop before investing.
Allowing political affiliations and beliefs to influence your portfolio.
“There is no correlation between economic growth and political affiliation or who’s in power,” said Ciskowski. “GDP is mostly affected by population growth and labor productivity – two variables over which politicians have very little influence. As for GDP expectations going forward, we anticipate 4 percent in 2022 and 2.4 percent growth in 2023.”
Supply Chain Issues have had extreme consequences. COVID lockdowns, particularly in manufacturing countries like China, have slowed the pace of goods being available for consumption. The Omicron variant is putting renewed pressure on certain cities within China once again, and although improving – worker shortages remain at key points across the supply chain, some of which is also COVID related.
There was excessively strong demand for consumer goods as spending shifted away from services and towards goods, due to COVID. There are longer-term infrastructure investments needed to handle elevated consumption, and no short-term solution.
Truck drivers are largely paid by the delivery – not by the hour. The delays have put added pressure on the trucking industry. Many have left the profession. All of this is having an impact on prices (inflation) and we expect these dynamics to improve overall, but we are still a ways off from fixing these issues.
Dyer discussed U.S. economic growth in 2022 and beyond. “U.S. stocks should remain the predominant allocation in most portfolios,” he said, “due to continued economic growth; low unemployment and healthy consumption; solid corporate sales and earnings growth expectations and hedging against inflation,” he said.
U.S. stocks will likely underperform their recent past. Longer-term expectations for U.S. stocks of 5-7 percent remains reasonable (3-5 year market cycle) and a tightening monetary policy is likely to put pressure on valuation levels. Interest rates will likely rise this year, so it is suggested to use fixed income (bonds) for risk reduction primarily, but keep maturity/duration exposure very short-term. Finally, expect the Fed to increase interest rates three to four times during 2022, so avoid longer-term maturity bond allocations until after the Fed tightening.
Ian N. Breusch, CFA, Chief Operating Officer and Senior Portfolio Manager, addressed questions following the presentation. The first regarding whether the unemployment rate is affected by a lower participation rate, and is the labor market really as healthy as the unemployment rate would indicate?
Breusch answered, “There are certainly shortcomings in the way the unemployment rate is calculated, but it provides us with a good sense of overall health across labor markets. There’s no doubt employment has improved dramatically over the past few years allowing the Fed to focus more closely on inflation going forward.”
Also, does The Trust Company focus on ESG (environment, social, governance) issues when investing?
“We are able to accommodate client concerns regarding ESG issues,” said Breusch, “which is a real benefit of our approach to managing assets separately across client relationships.”
For more information about The Trust Company’s investment strategies for client portfolios, visit the Trust Company’s website.
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