Despite all of the rigorous preparations Olympic skiers go through for their race downhill, the smallest mistake on the course could mean the difference between winning gold and disaster.

A skier must consider all of the factors and “risks” that are going against them in a race, such as the wind, winding turns, and the mountain’s conditions, among others. As investors we not only have to be prepared for a downhill market, but also have to be cognizant of the risks that lay ahead as we navigate a potentially bumpy terrain.

Potential Risks

The ongoing pandemic

Entering year 3 of the COVID-19 pandemic, the discussion is a tired, yet appropriate one. As we’ve seen in multiple instances, new variants can pop up at a moment’s notice and can scare the market.

European conflict

While the risk of Russia invading Ukraine has seemingly abated, any advanced threat of war could bring turmoil to markets around the globe.

Fed fumbles

One of the biggest headwinds to the markets lies with the Federal Reserve, where they are still debating hiking rates 4 times this year. This could prove to be both too much and too late, as we appear to be approaching the end of the market cycle. All eyes will be on them as they also plan to reduce stimulus and assuage the increasing inflation concerns.

Preparations

In order to become an Olympic-level skier, preparation is key. You have to map out the course, get in pristine physical shape, and make sure you have the right equipment to propel you down the hill efficiently and safely. As advisors, we want to make sure that you get down a market “hill” in the same manner.

Mapping the course

We continue to map and measure economic data on a quarter-to-quarter basis, ensuring that no sharp turn in the market catches us by surprise. Our model forecasts the rate of change of both economic growth and inflation to slow, putting us in the “winter” season, an environment that is historically poor for equities.

Getting in shape

We look for opportunities to rebalance your portfolios and get them to a weighting that makes sense in the upcoming negative environment. This could mean cutting unnecessary risk.

Choosing equipment

We feel it is prudent to shift into holdings that have historically performed well in comparable economic conditions. Since the winter season is historically an environment in which equities can struggle, the best holdings tend to be defensive equity sectors, dividend paying stocks, and long-term treasury bonds.

Our Outlook: Bearish

We are transitioning to a negative outlook given our economic forecast for both growth and inflation to slow in the first half of 2022. Combined with a potential policy mistake from the Fed, we believe it is prudent to reduce risk, take profits off the table, and prepare for heightened volatility in the markets. However, we are not forecasting recessionary conditions and as a result believe pullbacks in the market may represent attractive buying opportunities to re-enter some sectors at lower prices.

How Can We Help?

At GGM, aligning your investments with the prevailing economic environment is just one of the ways we strive to add value to your portfolio. If you are concerned about whether your investments are primed for the current market and allocated to meet your objectives, we recommend our complimentary portfolio checkup. Contact us today!