By: Chad Meyer, CFA

For much of the last year, the investment community reaped the fruits of a truly odd phenomenon. While the world changed dramatically (and often, it seemed, without warning), the market continued its ascent. Beset by uncertainty on all fronts, the financial story of 2021 was one of growth that simply could not be bothered to share in the rest of the world’s worries. As the headlines zigzagged from one uncertainty to the next, nearly every major index climbed higher and to the right.

As the saying goes, “you don’t know what you got ‘til it’s gone.” In the first three months of 2022, the Dow Jones Industrial Average dropped 4.6%, while the S&P 500, turning in its first quarterly loss in two years, fell by 4.9%. Of course, more telling than the numbers themselves is the bumpy path that produced them. Writing in this space last year, I even noted the market’s “historically low levels of volatility.” By contrast, the S&P fell a painful 5.3% this January, only to sink more than 3% in February before rebounding by 3.7% in March. When it comes to the era of low volatility, it appears history has moved on to the next chapter.

Not surprising, the market’s return to temperamental form has some onlookers bracing for impact. Noting the apparently inescapable grip of the “volatility vortex”, the Economist recently opined that “fasten your seat belts” may become the motto of the year. Going one step further, several prognosticators emeriti of the hedge fund world have pegged the chances of a recession over the next twelve months at around 30%. And while these concerns—namely, that that of inflation and the tragic situation in Ukraine will continue to send interest rates up and asset prices down—may be overwrought, they are not lost on the general public. Asked in a spot poll whether or not they believe equities will have increased in value a year from now, fewer than half of investors mustered positive replies.

To the extent it counsels for caution, as opposed to outright doom and gloom, we believe this sea change in sentiment merits our attention. Indeed, with the current economic expansion set to continue, the need for prudence in capital allocation has never been greater. But taking a close look at fundamental, rather than sentimental indicators of the American economy, we firmly believe that while prudence is wise, passivity is not. Corporate earnings, the lynchpin of every bull market’s run, are expected to post 5.1% growth for the first quarter, with technology firms (the same ones much maligned in the press) leading the pack. Coupled with an anticipated increase in corporate spending, and set against the backdrop of continued “synchronous” global expansion, we think this momentum bodes well for U.S. equities as we move deeper into 2022.

More particularly, we believe it bodes well for you. As the “volatility vortex” continues to deliver wild, headline-driven intraweek swings, our team will be able to strategically add to high-conviction positions and enter into new ones at price levels that simply weren’t available in 2021. And though we do not, by any stretch, welcome market weakness of any length or degree, we are heartened by the knowledge that historically, our conservative, value-driven approach has performed best in bearish market climates. So whether or not the storm clouds that drifted over the market this past quarter disperse, darken, or do anything in between, we remain confident in our ability to continue the protection and growth of your hard-earned capital.

Chad Meyer, CFA

President