Trends guiding share purchases in 2022

Individual investors often approach stock purchases with concern, but you can allay those fears by assessing trends.

Individual investors often approach stock purchases with concern, but you can allay those fears by assessing trends that are likely to affect sectors, companies, and funds.

January is a good time to sell stocks in order to collect cash for purchases due to the capital gains tax schedule. Taking earnings in January means that tax on them won’t be due for 15 months. It’s the flip side of selling the losers’ stocks at the end of the year to get the loss deduction the following April, known as the crop of losses. If you haven’t reaped a loss in 2021, don’t worry; just decide to do it next December. (All of this assumes the stocks are in a taxable account, rather than a tax-deferred account such as a 401 (k) or IRA.)

The next step in the portfolio rebalancing process is deciding what to buy, a discipline that involves factors such as: sector and industry predilections, your view of market direction, a stock’s fundamentals, your ultimate goals, and your time horizon to start withdrawals (by most people, the length of time until retirement). Unless your tolerance for risk is high enough, today’s popular market may mean it’s a good time to focus on low-risk, value stocks, ones that have good fundamentals but are largely unloved. Yes recent clues To be foresighted, value stocks – especially small-cap stocks – could become more popular this year.

To avoid looking for love in the wrong places, it helps identify trends that are likely to affect a stock. This is just one tool among many, and all we know for sure, of course, is what is happening right now. Yet it can significantly inform purchasing decisions. Here are some trends to consider:

Interest rates are rising. The financial media is obsessed with the Fed’s rate hikes as if the resulting drop in stock markets were inevitable. And now that the Fed is planning three rate hikes this year, market hedging based on this obsession constantly hangs over us. Yet if history is any guide, the talking heads have it all wrong. While they usually go into a frenzy during the first Fed rate hike in a series, this event usually bodes well for stocks. The S&P 500 rose on average 6.6% in the six-month periods after the first hike in the Fed’s eight rate hike cycles since 1983. And in the three-month periods before the first hike, l The index increased on average by 5.1%. .

The second hike was often followed by market gains over the following months, so it’s usually not a bad idea to buy a dip after the first two rate hikes. Falls after the third hike in a series were another matter; buying on them is generally not advisable.

Growth of infrastructure, both private and public. Some industrials in the infrastructure sub-sector have done quite well in private ventures over the past 18 months or so, and the category is expected to experience continued growth over the next few years thanks to government spending in the country. $ 1.1 billion Infrastructure Act adopted by Congress in November.

But should the possible benefits of the legislation not already be taken into account? Not necessarily. While the market is generally forward looking, sometimes it has the patience of a teenager. And, preferring large tech growth stocks, many investors are not turned on by unsexy industrialists. Ironically, some of these companies are surprisingly technological. One example is Caterpillar (CAT), which manufactures autonomous earthmoving vehicles. By the end of December, CAT shares had risen about 50% since mid-August 2020. It is unclear which companies will ultimately benefit substantially from the next increase in federal infrastructure spending, but investors can reduce the risks. by purchasing targeted exchange-traded funds (ETFs).

For example, the holdings of Global X US Infrastructure Development (PAVE), which grew by more than 50% in 2021 between mid-January and the end of December, include manufacturers of construction equipment and materials used in the construction of roads, bridges and railroads. Why invest in prospectors when you can invest in the pickaxes and shovels they need?

Inflation continues. The Fed appears confident that the high inflation it underestimated for most of 2021, which hit a 30-year high in November of 6.8% (annualized), will subside this year. However, the projections of some large financial companies are much higher than those of the Fed, and some of them expect inflation to get worse this winter before it improves. Inflation is widely seen as a scarecrow for stocks, but there is evidence to the contrary.

It is clear, however, that this is a good opportunity to buy Real Estate Investment Trusts (REITs), which can do well in a context of high inflation, as these owner companies may simply increase the prices. rents, often via automatic indexation clauses. This reputation for resisting inflation has attracted substantial new investment in recent months, pushing up prices. However, there is probably still room for some to rise. And well-chosen REITs can be good long-term holdings, generating income in the form of dividends. If the share price rises dramatically, that’s even better.

Stock market volatility. Factors causing the market yo-yo include the Omicron variant and expected increases in interest rates. There are inherent opportunities for gain in volatility because it is, in effect, an asset class. Various ETFs, such as WisdomTree CBOE S&P 500 PutWrite Strategy Fund (PUTW), exploit volatility through options trading. Such funds can be a good alternative to bonds, especially now that bonds pay negative returns after inflation.

This is an unusual market period, in part because of significant government economic stimulus, but in decline. For this and other reasons, the market now finds itself in largely uncharted territory creating uncertainty that will fuel continued high volatility. As a result, there will be buying opportunities, so it’s a good idea to save some dry powder – money.

Dave Sheaff Gilreath, a Certified Financial Planner, is a 40 year veteran in the financial services industry. He is a partner and investment director of Sheaff Brock Investment Advisors LLC, a portfolio management company for individual investors, and Innovative portfolios LLC, an institutional fund management company. Based in Indianapolis, the companies manage approximately $ 1.5 billion in assets nationwide.

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