Liz Looks at: Feisty Markets

By: Liz Young · December 02, 2021 · Reading Time: 4 minutes

The Most Wonderful Time of the Year?

Happy December. So far Santa has brought us a new COVID variant, increased travel restrictions, an abrupt retirement of the word “transitory,” and topped it off with three big down days in markets since Thanksgiving. Bah-hum-bug.

Those days looked dramatic, but we had just come off a 9.1% run in the S&P from Sept 30 to Nov 24. That’s more than the average annual return of the index. Not to mention it’s still up 20.2% YTD even after those big down days (which at this point amount to a pullback of 4%).

Not so bad, right? But it’s about how it felt, is what people will say. I hate to be the one to break this news: the market doesn’t care about our feelings.

Here’s what to do to keep your feelings in check and your portfolio in balance through the end of the year.

Scooping up Those Dips

On a regular basis, take inventory of your portfolio by looking at the extremes in your positioning and try to match it up with your thinking. In other words, take note of your largest positions, largest unrealized gains, smallest positions, and largest unrealized losses (or smallest gains, if you do not have any losses), and square them with your outlook, or an outlook of someone else’s you agree with.

Are your largest positions in asset classes, sectors, and size categories you think can do well over the next 6-12 months, or do they represent what’s done well over the prior 6-12 months? If the latter, days with big market moves are opportunities to align your thoughts with your actions.

As was made ever more apparent in recent days, the era of ultra-loose policy and a perma-dovish Fed is coming to an end. Although that spooked markets, the broad-sweeping sell-offs also created an opportunity to build or add to spots that have the potential to do well once the dust settles. Namely, Industrials (ex-airlines), Consumer Discretionary (ex-stay at home), Energy, Financials, and Small-Caps. And even though it didn’t pull back as much as other sectors in the last few days, I’d add Health Care as an attractive position not just in 2022, but over the next 2-3 years as demand booms and the marriage of health care and technology revolutionizes the space.

See the Forest Before Choosing Your Tree

The best way to keep your investment emotions in check on dramatic down days is to take a step back and look at the full picture before making a move. The full picture is that a shift in policy likely means a shift in market leadership, but it doesn’t have to mean a lack of leadership all together. I remain bullish on the economy into 2022 and believe part of the reason the Fed will need to tighten policy is because there is such strong demand, including pent-up demand.

Yes, December could hold a few more bumps. Yes, we still need to get more information on this variant and how big of a disruptor it will be. Risks and unknowns are the nature of the beast, and to quote my Dad, “If it were easy, it wouldn’t be any fun.”


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