February 2020 - INVESTMENT ADVISORY NEWSLETTER

[Pages:2]JANUARY 2021 - INVESTMENT ADVISORY NEWSLETTER

THE ECONOMY 2021 is going out with a Christmas-New Year's bang, economically speaking. Goldman Sachs is now projecting Gross Domestic Product (GDP) growth of 7% for the fourth quarter, the best quarterly performance of the year despite supply chain issues, inflation, a resurgent Covid, and general fatigue after two years of Covid exposure. Record holiday sales were reported on top of a lackluster November sales report. Exports, rising inventories, and strong holiday spending are providing the biggest contributions to the latest GDP figures. Holiday sales soared, with e-commerce alone notching outsized 8% gains over last year's ecommerce reported sales. Total retail sales in the United States jumped nearly 11 percent this holiday season as compared to holiday sales in 2019 before the pandemic upended the global economy. Mastercard's SpendingPulse reported an 8.5 percent increase in retail sales over last year's holiday season, defined as Nov. 1 to Dec. 24. Americans with cash to spare, the upper arm of the "K" shaped economy, with stock market gains and increased wages get most, but not all, of the credit for the sales surge. Consumers with stimulus and the child tax credits also contributed to the holiday shopping, Luxury items such as jewelry, electronics, and classic toys all set record holiday sales.

Omicron remains the primary risk to the economy in the near-term. Europe is facing the prospects of widespread restrictions across the continent for both vaccinated and unvaccinated individuals. The Netherlands is taking the strictest approach so far, opting for a full lockdown of schools and non-essential stores as the country's healthcare system becomes overburdened (Dutch stocks are about 9% below their December highs). Restrictions are focused on the services, which impacts airlines, hotels, retail, restaurants, cruises, and other areas of hospitality. France and Germany have enacted travel bans. Spain, Italy, and Ireland, among others, are convening to determine ways to stem the spread of the virus without sacrificing economic health. It sounds unlikely that all countries will impose more serious restrictions until after the Christmas/New Year's holiday, but with Oomicron case counts estimated to be doubling every 3-4 days, countries could quickly find their situations spinning out of control and forcing more widespread closures. Travel bans are likely to have a more contained economic impact, but closures for more major nonessential retail outlets could be enough to spook investors. At home we are witnessing the cancelation of sports events, airplane flights, and live concert events. Some colleges and schools are reinstituting virtual lectures for several weeks. And we have a general shortage of Covid test kits. Stay tuned!

MARKET PERFORMANCE ? Markets Look Past Covid and Inflation, Thanks to Santa

Consumer Products and Utility related funds recorded the best gains in December. Asian and Transportation related funds posted losses for the month. This December was the most volatile December recorded in 25 years. NASDAQ was the most volatile market. The strongest Santa Claus rally in 20 years saved the month. Blood pressure pills were in order!

? S&P 500 ? up 4.6% for December & up 27.1% YTD

? NASDAQ OTC ? up 1.7% for December & up 23.5% YTD

? All World w/o U.S. ? up 1.3% for December & up 5.6% YTD

? Global Bonds ? down 1.3% for December & down 3.2% YTD

? Balanced Index ? up 1.9% for December & up 14.2% YTD

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January 2021 - Investment Advisory

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RECOMMENDATIONS ? Volatile Markets Produce Record Month-End Gains

This December was the most volatile December market recorded in 25 years. In just four trading sessions before the Christmas holiday, the markets rallied 5 percent to preserve what has come to be known as the Santa Claus rally. The rally continued after Christmas. This was on top of a year that was volatile a good part of the time with Covid, inflation, and anticipated Fed tightening creating uncertainty throughout the year. A 'Santa Claus Rally" is a term used to describe the phenomenon where the stock market has historically increased in value 80% of the time during the last week of December and into the first two trading days of the new year. There are a number of theories as to why this happens ? from tax considerations to investors buying stocks with their holiday bonuses. The Santa Claus rally trend was first identified by Yale Hirsch, the founder of the Stock Trader's Almanac. It was tempting to unload stocks early in the month with NASDAQ down over 5 percent heading into Christmas. It was a good thing we avoided temptation. We participated in the strongest Santa Claus rally in 20 years which saved the month. This year's market gains were largely limited to S&P500 largecapitalization stocks. The S&P 500 returned over 28% for the year, but 25% of those gains were limited to the "FAANG" stocks. "FAANG" is an acronym that refers to the stocks of five prominent technology companies: Meta (FB) (formerly known as Facebook), Amazon (AMZN), Apple (AAPL), Netflix (NFLX); and Alphabet (GOOG) (formerly known as Google). Small-Caps rose 13%. Overseas markets did not do as well in 2021. The "All-World ex US" (VEU) index returned 5%. The Emerging Markets index fell 5%, and China's markets fell over 20%. Gold fell 5%, and bonds fell 2% for the entire year.

One thing about next year's stock market is becoming clear: Chances are better than good that the ride is going to be bumpy. Barrons, The Wall Street Journal, Bloomberg News and the Minneapolis Star Tribune have all posted articles from market analysts giving their market forecasts for 2022. If you cut through the technobabble you will see that none are predicting double digit gains for next year. Some are predicting a correction of 10-20 percent at some point next year. We've endured, and will continue to endure, the ups and down of Omicron, inflation news, and the politics of spending in Washington. If the Fed reduces its bond buying program, tapering, and raises short-term interest rates, as expected next year, to stave off inflation, earnings projections could easily fall, and stock prices sink. For the first time in years, the stock market will not be relying on Fed provided liquidity for gains. Jerome Powell has his work cut out for him!

On the positive side: ? The economy is expanding and will hopefully continue to expand in 2022. ? Covid-19 vaccines and boosters have been approved by the FDA, supporting mass vaccination. ? A multi-billion infrastructure package has been approved.

On the negative side: ? The Federal Reserve is set to begin tapering bond purchases and raise interest rates in 2022. ? The Delta & Omicron variants loom large as winter arrives. ? US/China financial issues could derail the markets. ? Multi trillion-dollar deficits are with us for the foreseeable future. ? Inflation is a concern with supply chain issues raising costs.

We reacted to the news of inflation by exchanging some of our diversified holdings into the Rydex Semiconductor sector fund when energy and precious metals funds declined in December. Technology funds fell 6% early in the month and rebounded 5% late in the month. We exchanged half of Rydex Semiconductor into Rydex Utilities to avoid large scale losses. An outsized Santa Claus Rally saved the month and then some! We expect to stay diversified heading into January. Stay tuned.

RELATIVE STRENGTH RANKINGS

Relative strength rankings indicate short-term (1-3 months) historical performance.

No-Load Funds that are highly diversified should constitute the "core" holdings in a portfolio.

? JABAX

Janus Balanced

? RYSPX

Rydex S&P500

? PORTX

Trillium ESG Global Equity

Industry Specific Sector Funds

? RYSIX

Rydex Semiconductor

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January 2021 - Investment Advisory

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