News & Insights

Our friends at Dimensional Fund Advisors recently addressed market timing and tactical asset allocation against the current environment of rising inflation, the likelihood of higher interest rates and the War in Ukraine. The historical perspective adds good support for the conclusion that attempts to avoid short term volatility can lead to significant portfolio underperformance over the longer term and our view that clients remain at or near their strategic asset allocation while maintaining enough cash to meet near term needs. Should you wish to discuss with a member of our team please do not hesitate to reach out.

Baird's Washington Policy team takes a look at some potential next steps, likely sanctions, and longer-term implications of the action.

Last quarter, we observed that the Fed would likely normalize rates faster than some expected as to not let the economy overheat. The early January markets seem to be proving that out. The knock-on effects of higher rates are being felt in the equity markets. Growth companies have been most affected when measured by fundamentals such as earnings as well as the discounted present value of future earnings. Until corporate earnings show the ability to outpace the effect of interest rates on stock prices there will be increased volatility in the equity markets. Value should continue to outpace growth over the near term; a trend that began late in 2021 and has accelerated in early 2022. It is against this backdrop that we attach Baird’s 4Q21 Market Update and Rolling Asset Class Returns for the past 20 years along with quarterly 2021 asset class returns. It does not appear that Large Cap Growth is in a position to continue its streak of three years and four of five years as the best performing asset class. As we invest on behalf of clients, we will continue to favor value over growth and short term fixed income over longer duration. We continue to advise clients to be at or below strategic maintaining surplus cash for near-term needs. The DDK Group is excited to announce that Tiffany Kowieski, along with her husband Matt, welcomed their daughter, Quinn Elizabeth Kathryn on December 20th, 2021. Mom and baby are both doing well, and big brothers Theo and Wes are so excited! Tiffany will be on family leave through mid-March.

Retirement is supposed to be “our time” – when we’re no longer spending the better parts of our days building a career or raising kids (or both!). It’s an opportunity for us to share experiences with loved ones and pursue our passions without worrying about bills or balancing our dreams against an employer’s. But for a lot of women, that’s not how retirement plays out. Research tells us that 60% of women do not expect their income to last throughout their lifetime, and 62% are worried they won’t be able to maintain their current lifestyle in retirement. Why is that? Why aren’t women as confident about enjoying retirement as men?

The third quarter was a test of equity market resolve. Only large cap growth and commodities managed a positive return as geopolitical factors, together with continued supply chain interruptions, brought resurgent prices in all parts of the energy sector. Price inflation was driven by a rise in all input costs including materials, labor and transportation. This caught the attention of lawmakers and the Federal Reserve causing Fed Chairman Powell to recently concede that inflation appears to be less transient than originally thought. Most economists are seeing inflation in the 4-6% range for 2022 before returning closer to the Fed target of 2% in 2023. For now, the Fed seems committed to begin tapering its $120 billion in monthly bond purchases without any immediate change to its policy rate. Fiscal changes and tax policy remain in flux. Instructive is that both of the previous administrations were able to pass just one signature piece of legislation during their tenures – The Affordable Care Act (Obamacare) and the so-called Trump tax cuts. The Biden Administration’s Infrastructure bill and Build Back Better bill will test the “one and done” nature of legislation in a first-term president with his party in control of Congress. Will these proposed bills pass as is? At this point, we cannot say. We would recommend that clients call us to discuss what action MIGHT be available IF some or all of the proposed federal income tax and estate tax changes become a reality. From an investment perspective, we continue to recommend keeping at or slightly below equity targets given current valuations. Attached is Baird’s Q3 2021 Review and Outlook which highlights several of the above themes. In recent team news, we are excited to introduce some new faces to the DDK Group! You may recognize Connor Allen, as he has been working with our team through Baird’s Foundation Program since the beginning of 2021. He has recently officially joined the team as an Associate Financial Advisor. We also have Myles Murray joining our team through early 2022. Myles is a member of Baird’s Foundations program, and he will be spending 6 months with the DDK Group as part of the rotational program. Please join us in welcoming both Connor and Myles!

The latter half of 2020 and the first quarter of 2021 saw a fairly clear rotation toward a higher, long-term interest rate environment; or at least the expectation of such. We saw in the second quarter an appetite for traditional value stocks, as well as small caps over large cap, reverse once again as treasury yields fell and bonds rallied, while the headline growth stocks re-established their leadership. Fans of the FAANG names, bolstered by re-opening economic metrics, pushed these megacaps to all-time highs, while the industrial and financials names were either flat or retreated slightly. Real estate (+13.1%) and energy (+11.3%) bucked the growth bias and had returns in-line with Technology (+11.6%). International equities continued their positive performance, though still struggling to keep up with US equities, were no doubt hurt both by dollar strength and a slower re-opening trade. Despite the most recent moves in bonds, we continue to favor shorter duration fixed income as we believe short-term moves in interest rates are transitory and that the Fed is likely to move short-term rates closer to its policy rate over the next eighteen to 24 months. We encourage our clients to be at or near their strategic allocations while keeping short term cash needs available in cash or short-term fixed income.