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Hope you are all doing well. The major U.S. stock indexes managed to gain this week. The Dow and the S&P 500 added around 1% for the week; the NASDAQ eked out a tiny gain.   The S&P 500 on Monday briefly entered correction territory, as its low point in intraday trading was more than 10% below a record high set just three weeks earlier. A subsequent recovery in the afternoon lifted the index above correction territory by Monday’s close. The pattern repeated itself the next four days, it made intraday lows more than 10% below the January 3 record then rallied each time to close at levels above correction territory.  It made for a wild week of volatility.  Yesterday it was reported Tom Brady was retiring, I was lucky enough to get a ticket to see Brady’s first Superbowl win.   I have broken down this week’s news using his coach and opponent from that first championship.

The Economic Version of the Greatest Show on Turf

The Rams offense dubbed the Greatest Show on Turf was hard to slow down once it got going.  The U.S. economy like those Rams is picking up momentum as we get deeper into the recovery.  The economy expanded at an annual rate of 6.9% in the fourth quarter. GDP growth in 2021 was 5.7% on an inflation-adjusted basis that’s the fastest growth since 1984. The US has rebounded quickly from the pandemic-induced recession in early 2020. We are still in the middle of this economic expansion, not the end.  A healthy U.S. consumer, corporate balance sheets that are solid, and earnings growth that is expected to be in the 9% range this year are all reasons for optimism.

The Belichick Fed

The U.S. Federal Reserve like Coach Belichick is trying to execute their game plan in all 3 phases; fight inflation, keep the labor market strong, and keep the economy growing. The policymakers signaled that they remain on track to begin lifting short-term interest rates at their next policy meeting in mid-March. The Fed didn’t indicate how many additional increases it expects this year as it tries to prevent a further surge in the already high inflation. Some of the drop in the stock market was in anticipation of the Fed raising rates and removing monetary support. As the Fed begins to raise rates, expect volatility, it is healthy and normal. Historically, one to three corrections in the 5% – 15% range are the norm in any given year. Sticking with the Belichick theme, try to be mistake free with your portfolio, sit tight, and don’t sell during these corrections. Since we are not near the end of this economic or Fed cycle, any market drops can be used as opportunities to add to or diversify portfolios.

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