MARKET OUTLOOK:
The burning question for equity markets in 2022 will be “how aggressive will the Federal Reserve have to be in raising interest rates?” Understanding that the Fed has no interest in disrupting a constructive stock market, given the reverberations to the economy, hawkish tones and increases in interest rates will be driven by what the Fed is forced to do as much as what it wants to do. 

If inflation remains stubbornly high (not our base case), increasing rates more rapidly than planned will be in the cards. Of course, if they raise too aggressively, the risk is that they put the economy into a recession. 

At Goodreid, we believe that a so-called soft landing is quite possible. As the supply chain issues slowly resolve themselves, we think inflation will gradually drift lower, leaving the tailings of some wage inflation. In addition, the technology revolution comes with significant deflationary pressures, a good antidote to cost-push inflationary forces. 

The biggest risk we see is that the economy will be headed in the right direction but that, as has happened before, the Fed makes a policy error by not being patient enough. In the absence of this negative event, corporate earnings are on a strong and steep upward trajectory. As was the case in 2021, it is possible that the market advances nicely while at the same time valuations drop, made possible by earnings growing faster than market prices.

TOP PICKS:

Amazon (AMZN NASD)
Last bought in December 2021 at $3,346.00 
The most recent earnings report for AMZN illustrated the dramatic economic effects of the pandemic. Ecommerce trends cooled somewhat as the stay-at-home influence pulled demand forward. At the same time, Amazon’s cloud offering is on fire, growing very smartly. New CEO Andy Jassy is picking up where founder Bezos left off, making bigger investments in fulfillment infrastructure to satisfy future demand. This formula has been a winner and we expect much higher prices in the future.

Hanover Insurance Group (THG NYSE)
Last bought in August 2021 at $142.00 
Although THG suffered high catastrophe losses in the third quarter, the stock had little reaction, attesting to the fact that losses are a part of the insurance business and paradoxically give insurance companies future pricing power. Normalized earnings in 2022 are expected to run at $11/share and with the aforementioned pricing backdrop, Goodreid believes earnings can grow at a double-digit pace for the next few years.

Raytheon Technologies (RTX NYSE)
Last bought in December 2021 at $80.00 
Raytheon’s time is coming. Commercial orders continue to firm and when the pandemic finally passes, airline companies will be lined up to buy new equipment. In addition, their maintenance business will firm as utilization of existing fleets increases. This powerhouse industrial will be rewarded for their earnings power and ability to produce large amounts of cash. Their defense business is robust and has been a stabilizing factor for investors.

PAST PICKS: January 19, 2021

Anthem (ANTM NYSE) 

• Then: $323.69
• Now: $444.95
• Return: 37%
• Total Return: 39%

CVS Health (CVS NYSE) 

• Then: $75.40
• Now: $104.93
• Return: 39%
• Total Return: 42%

TTEC Holdings (TTEC NASD) 

• Then: $75.90
• Now: $87.70
• Return: 16%
• Total Return: 17%

Total Return Average: 33%