Rainier Trinidad Featured as a Guest Financial Panelist at the Rotary Club of Coronado
The market is at uncomfortably high levels. We have valuations higher than the 2000 dotcom bubble, but the high valuations are also coinciding with the record high profit margins for corporations. Some people wouldn’t feel comfortable touching the market with a 10 foot pole. Well, we are investing with a 9 foot pole (ETFs with 9% loss protections), so we have a means of participating in the continued economic expansion while having protections against the inevitable bumps. For 2022, I am expecting quite a few bumps along the way:
Exhibit 1: High starting valuations (Price to Earnings ratios, or P/E) tend to result in lower returns:
Exhibit 2: Rising interest rates = tighter financial conditions = choppier stock market
Exhibit 3: Despite the chart in Exhibit 2, there is historical evidence that markets can continue to rise in the early stages of interest rate increases, like it did in 2016 and 2017:
Exhibit 4: Years with shallow pullbacks in the stock market (like 2021) tend to be followed by years with larger pullbacks sometime during the year (median pullback of 9%). Despite these pullbacks, markets have tended to have positive returns (median return of 10%):
Exhibit 5: It’s a election mid-term year. Going back 59 years, the market tends to have a rough time until October:
Given the above, I think being invested in ETFs with loss protections and accelerated returns of 2x to 3x is the best way to be positioned. Returns will likely be lower this year, and bumpier for the average investor. What we have gives us a healthy blend of upside participation and downside loss protections so we can have a smoother ride in 2022.
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