Christmas and the holiday season are full of family traditions. It is a time to reflect on the year that has passed and to set new goals. Asset managers and investors also have a ritual to highlight what worked well in their portfolios as well as what did not pan out. Predictions and outlooks for the next year also garner attention. The legendary investor Byron Wien is well known for publishing his highly anticipated “Ten Surprises” every year.

A couple of years ago we started putting our own bullish and bearish scenarios for the market in a slide simply named our “Bull-Bear-Base.” We look forward to sharing our 2022 scenarios in the next few weeks.

I envision our Bull case to account for a continued economic recovery on the back of strong consumer demand and income. Fed Chair Jerome Powell just gave us an upbeat view of the economy at last week’s Federal Open Market Committee meeting. Corporate profits growing at 7.5% in 2022 and the Fed tackling inflation pressures by raising rates are positives. The Bear case most likely includes a monetary policy mistake, a potential slowdown or even downturn in the economy, as well as a market correction given current valuations.

The process to get to these scenarios is a collaborative discussion about multiple expansion and earnings growth, interest rate and inflation expectations, economic cycles, and a heavy dose of skepticism. Sprinkle in a few “what-ifs” and the foundation to our overall asset allocation takes place.

As investors and risk managers, the starting and ending points are less relevant than the journey. Markets go up and markets go down. Our goal is to have client portfolios fully participate in the positive years and offer protection in the down times.  Whatever the “average” return for the market ends up being in any one year — which according to FactSet is 10.3% for the S&P 500 since 1926 —  we prefer to prepare portfolios for non-consensus scenarios that fall outside of a normal distribution of events. For example, what would happen if the dollar collapsed or if a liquidity crisis emerges from an emerging market country? We believe in being prepared, not lucky.

A Sendero tradition that our founder Fred Middleton started early in his career is our, “Reasons why people did not invest in the stock market.” This annual list goes back to 1934 and highlights an event or a reason why you should not invest in the S&P 500. Negative stock market returns occur, on average, about one out of every four years. Historical data shows that the positive years far outweigh the negative years. If you choose to invest in stocks, learn to expect the down years. The punchline is that over the long-term, the best decision is to stay invested and participate as investing works over long time periods.

At the end of the year, I will add “2021— Supply Chains/Inflation Fears” and add 27% — as of Dec. 15 — to the list of worries.

1934 Depression 1977 Inflation Increases 
1935 Spanish Civil War 1978 Interest Rates Rise 
1936 Economy Still Struggling 1979 Oil Prices Skyrocket 
1937 Recession 1980 Interest Rates at All Time Highs 
1938 War Clouds Gather 1981 Steep Recession Begins 
1939 War in Europe 1982 Worst Recession Begins 
1940 France Falls 1983 Markets Hit New Highs 
1941 Pearl Harbor 1984 Record Federal Deficits 
1942 Wartime Price Controls 1985 Economic Growth Slows 
1943 Industry Mobilizes 1986 Dow Nears 2000-Market Too High 
1944 Consumer Goods Shortage 1987 Market Declines 20% in One Day 
1945 Post-War Recession Predicted 1988 Savings and Loan Crisis 
1946 Dow Tops 20 – Market Too High1989 Bank Failures Increase 
1947 Cold War Begins 1990 Persian Gulf Crisis 
1948 Berlin Blockade 1991 Dow Nears 3000-Market Too High 
1949 Russia Explodes A-Bomb 1992 Global Recession 
1950 Korean War 1993 Healthcare Reform 
1951 Excess Profits Tax 1994 Collapse of Orange County 
1952 U.S. Seizes Steel Mills 1995 Market Crosses 5000 
1953 Russia Explodes H-Bomb 1996 Lowest Dividend Yield Ever 
1954 Dow Tops 360-Market Too High 1997 Asian Financial Crisis 
1955 Eisenhower Illness 1998 Russian Default 
1956 Suez Crisis 1999 Y2K 
1957 Russia Launches Sputnik 2000 Tech Wreck 
1958 Recession 2001 9/11 Terrorist Attacks 
1959 Castro Seizes Power in Cuba 2002 Dow Closed Lowest Level in 5 Years 
1960 Russian Downs U-2 Plane 2003 Iraqi War 
1961 Berlin Wall Erected 2004 Asian Tsunami 
1962 Cuban Missile Crisis 2005 Recession 
1963 Kennedy Assassinated 2006 Slumping Housing Market 
1964 Gulf of Tonkin 2007 Subprime Mortgage Crisis Begins 
1965 Civil Rights Marches 2008 Massive Stock Market Declines 
1966 Vietnam War Escalates 2009 S&P Drops 18.2% in First Two Months 
1967 Newark Race Riots 2010 Sovereign Debt Crisis 
1968 USS Pueblo Seized 2011 Triple A Rating on US Treasuries Lost 
1969 Money Tightens-Markets Fall 2013 Taper Tantrum 
1970Cambodia Invaded- Vietnam 2014 Oil Prices Begin Large Decline 
1971 Wage Price Freeze 2015 China Growth Fears Plague Markets 
1972 Largest U.S. Trade Deficit Ever 2016 Crude hit a low of $27.10 
1973 Energy Crisis 2017Terrorism and N. Korea tension 
1974 Watergate 2018Taper Tantrum
1975 Resources Shortage 2019Trade War with China
1976Limit to Long Term Growth 2020Global Pandemic

And ONE Good Reason Why You Should:

$10,000 Invested in the Stock Market (S&P 500 Index) in January of 1934 would be worth nearly $78,458,331.26 as of December 31, 2020. 

On behalf of all of us at Sendero, we wish you happy holidays!

If you have any questions or want to have a conversation about the market or your portfolio, please contact Liz, Ed, Fred, Scott, Tyler, or myself. Your Sendero team is ready to help. 

Best Regards,
Amaury de Barros Conti
210-930-9409
aconti@sendero.com