Welcome to Keen on Retirement, a show dedicated to helping you thrive before and during your retirement years. If you are looking to grow and protect your wealth and want to make the second half of your life the best half, then listen in as well as advisor Bill Keen and his host sort through the key issues that you need to know in a lively and candid way. Hello everyone, Bill Keen here. Our show today is a replay from our recent annual holiday event that due to COVID-19 we were once again forced to hold virtually this year.
You will first hear a brief introduction from Lindsey Freemier, our Director of Client Relations here at Keen Wealth Advisors, followed by a short message from me and then a message from Matt Wilson with his 2022 market outlook. Matt is the President and Chief Investment Officer at Keen Wealth Advisors, and I've had the good fortune of working alongside him for nearly 20 years now. If you've listened to our work in the past, you know that Matt does a great job in our quarterly market updates and annual outlooks as he provides an array of supporting materials and data that folks can understand and follow. You're listening now to the Keen on Retirement podcast, which is one method to consume our work.
But a better method for this show, in my opinion, would be to go to Keenwealthadvisors.com and click on the Retirement Resources drop-down tab, then on blog and podcast, to watch the full high-quality video of our presentation that includes Matt's slides as well. It's much easier to reference the slides when you hear him talking about data than just listening to the audio. Either way, I am certain you will find our presentation very informative and a resource for your thinking and planning for the remainder of 2021 and out into 2022. Good morning.
Thank you for joining us for our annual holiday event. I am grateful to once again kick off my favorite event of the year. You are all in for a special treat this morning as Matt Wilson will be providing our 2022 market outlook, and we will conclude our event with inspiring entertainment by the Dickens Carolers. At Keenwealth, we have always remained committed to holding our various events throughout the year.
Even though they are currently virtual, we hope that you are finding them to be helpful and enjoyable. I miss seeing everyone this year, although we have faith that we will get back to our normal protocol of in-person events in 2022. I want to wish you all and your families a happy and safe holiday season, and without further ado, I will now turn you over to our founder, Enzi Oh, Bill Keene. Thank you, Lindsay.
Hi, Bill Keene here. As we are firmly in the holiday season, we want to say thank you for allowing us the privilege of serving as your financial advisor, walking alongside you for all that the future will bring. And thank you for taking the time to join us today. It means a lot to the team and I.
As most of you know, this time of year we hold our annual holiday breakfast and market outlook here in Overland Park, Kansas, and we very much look forward to the fellowship, market outlook, and entertainment, and nice breakfast that the morning provides us. Last year was the first time in 24 years that I held this event virtually. As many of you may know, this year we had scheduled and planned to hold our annual open house and today's event in person, but determined that once again the prudent decision would be to go virtual. These in-person educational and appreciation events likely would have held today that so many of you have joined us for over the years are a unique hallmark of our firm, and very important to us.
And we look forward to getting back to these in the very near future. One of the factors that I hold most important at King Wealth is protecting the culture of the firm. The foundation of our culture begins with the incredible team at King Wealth Advisors, a team of dedicated caring professionals that never miss a beat looking out for your best interests, and I couldn't be more proud of your team here at King Wealth. Our objective is to provide a very proactive world-class financial planning and investing solution coupled with a highly personalized client experience, and to inspire confidence in you with every interaction.
It's a very big deal to us when a client trusts us with their life savings, and we take that responsibility very seriously. Also, each one of you, our valued clients, make our culture very special, and I honor and acknowledge you for the hard work and discipline that you have demonstrated in your lives to be in a position to have a secure and fulfilling retirement. As I am currently working on the second edition to my book, King on Retirement Engineering in the Second Half of Life, some of you may remember the dedication I made in the first few pages of that book, where I said, quote, to all of the clients I have had the privilege of serving over the years, thank you for demonstrating that through hard work, character, and responsibility, it is possible to start from nothing and build a fulfilling retirement for you and your families. Together, we form the very important culture of King Wealth Advisors.
During the nearly 30 years that I've been an advisor, it has been our honor to be advisors to some very accomplished people. We have advised top executives, world-renowned physicians, professional athletes, successful business owners, and leading engineers in many different areas of expertise and focus, and other people of great achievement. But we've also had the honor of serving war heroes, such as survivors of the World War II, Vietnam, Iraq, Afghanistan, and others, to whom we are eternally grateful. We've been financial advisors to many who have made the decision to contribute a significant portion of their resources to improving the lives of others through philanthropic donations of their time and their capital.
Yet we feel most honored to help others reach more everyday goals. We've been the financial advisors to folks who quietly saved and sacrificed to send their children to college, who helped their grandchildren purchase a house, or who quietly and without fanfare took care of an aging spouse or parent for a year after difficult year. For folks who call their neighbor every morning at 8 o'clock to make sure he's up and well. None of that is easy, and we have great respect for you.
I wish you could be a fly on the wall at Key Wealth, and hear the conversations between the financial planners, client associates, and others in our office. You know these are smart people, including graduates of our finest universities with credentials such as the CFP, CPA, and others. But there's an old saying that no one cares how much you know until they know how much you care. And I've seen them brainstorm about solutions to your vexing financial or tax problems.
I've been there as they rejoiced with you when a child graduated from college or a grandchild was born, and it countless inspiring retirements after long careers. I've known them to stop by a client's home during COVID to ensure that important transactions occurred at a time of immediate need. And I've seen them travel to hospitals and homes during difficult times to ensure that all bases were covered, allowing our clients to focus on the issues at hand, knowing that their financial houses were in order. For a profession that's supposed to be all about markets and numbers, these advisors care a lot about people.
In the final analysis, the reasons you earned and save and invest are about people too. As author Nick Murray says, it's not about points on a chart, it's about places in the heart. And I know that each one of my team would express the same words that I have the honor to speak for them today. And finally, before I introduce our next speaker, I want to share something very special with you.
Throughout 2021, we have made significant grants and are partnering with multiple charities, including the Veterans Community Foundation, Make-A-Wish, Family Conservancy, Angel Flight Central, the Grooming Project, and many others. And today, we are redirecting a portion of our resources that we had earmarked for today's live event, to making significant donations to those that are struggling during these challenging times. So I'm happy to tell you that we have directed donations to two very worthwhile causes, including Operation Breakthrough, whose mission is to provide a safe, loving, and educational environment for children in poverty, and to empower their families through advocacy, emergency aid, and education. And second, to the Kansas City Shepherd Center, whose mission is to support and celebrate Kansas City's older adults, fostering independence and connection to ensure that every person is seen, heard, and respected.
We have made today's donations in addition to the philanthropy that we do regularly throughout the year, and of course, on your behalf. We will be providing these very important funds to these groups so that they can serve the many that need the help now. Now for our next speaker. I would like to introduce my good friend and partner Matt Wilson.
Matt is the President and Chief Investment Officer of Team Wealth Advisors, and I've had the privilege of working with him for over 20 years now. And I must say, his steady hand, calm and measured demeanor, and his data-driven analysis of this year's events has been right on the mark. In his usual form, Matt today will be providing you with his 2022 market outlook that I'm certain you will find helpful and engaging. On behalf of myself, my wife, Carissa, and all of us at Team Wealth Advisors, thank you, and we wish you a very healthy and happy holiday season.
Matt, take it away, sir. Good morning, everyone. My name is Matt Wilson, and I am the President and Chief Investment Officer at Team Wealth Advisors, and I want to thank you all for tuning into our virtual outlook this morning. Now, it seems that we are finally coming out of a very unusual time of our lives as we have fought back COVID-19, and there's a lot to look forward to for the balance of this year and next year.
Today, our goal is to address our view on where the market is headed. But first, I'd like to just recap where we've been in 2021. It's been an interesting year to say the least. A lot of things have happened this year, and a lot of events have kind of taken place, but the theme for the market in 2021 has been earnings.
Earnings have been phenomenal. They continue to improve, beginning of the year, earnings expectations were about $170 a share, and currently, for 2021, we're sitting at about $206 a share kind of expectations by the end of the year. So, significant surprise to the upside, which led to the markets performing well. But in addition to earnings, we've also had the job market continue to improve.
As I mentioned, markets have done well. We've had some legislation from Congress. Infrastructure bill was passed. We've had some conversations around the debt ceiling and seems to be progressing well.
And then the Federal Reserve, they've been dealing with inflation throughout the year and have been talking about their tapering. So, I'll cover all these topics where we're at today and then our outlook for 2022. But here we are. We have the markets.
This is the S&P 500. This is through the close on December 7th. And I use the S&P 500 because it's a benchmark, 500 of essentially largest companies here in the United States. A good broad diversified basket of companies performed well this year.
It had very little volatility, especially from a historical perspective. Up nearly 25% of the year. This is going back to January of 2020. So, we had the COVID correction March, April, then the recovery throughout 2020 and then that sustained and recovery through 2021.
Now, these are some additional benchmarks that we look at going back to the beginning of this year. So, we've got the tech stocks represented by the NASDAQ. S&P, and you've got the Dow Jones following followed by the small caps and then international have had lagged. I mean, the large developed countries have performed well and then the emerging markets have struggled this year.
The reason I show those is because those really are a globally diversified portfolio. These are the benchmarks and the makeup of a globally diversified portfolio. From a sector standpoint though, this is looking at the sectors within the S&P 500. We've had broad participation.
That was quite a change from 2020 where there was clear winners and losers. I mean, here there has been definitely better performers than others, but everything has performed well. And two of the best performers this year are actually some of the worst performers in 2020, which does speak to why we talk about being diversified and utilizing a rebalancing process. Energy and financials really struggled last year and you can see have performed very well.
Now, fixed income bonds, those are also a component within the portfolio. These are the yields. These are just government bonds. So, this top line we have represented by United States treasuries, ten year bond.
So, loan your money to the government for ten years. They will pay you just under one and a half percent interest a year. Not a whole lot of interest. Can I see how those yields have ebbed and flowed.
Bounced around a little bit, got nearly up to 1.8 percent earlier this year, but have kind of settled in this range of where they're at today. Five year bonds, slightly less than ten year bonds actually over the last couple of months have started to increase in yield. Again, nothing to get overly excited about, but that is the current state of where we're at in the bond market. Now, this is bond performance.
So, that was yield. That was the interest that you make. This is the value of some benchmarks. And when you factor in the interest payments and the price of the bonds, they fluctuate based on interest rates and how they fluctuate.
And the longer the maturity of the bond, so the longer that the bond that you own until you get your principal back, the more interest rate risk it has, which means it fluctuates more relative to a change in interest rates. So, these two, the orange and kind of bluish, those are longer maturity bonds, longer duration bonds. And those, as we got closer to that 1.8 percent of the ten year treasury, you can see the performance of those really did kind of struggle for a while. Came back, but still in negative territory for the year.
As of most bonds this year, I mean, these are slightly negative. And then as you go longer out of maturity, you can see bonds have struggled slightly. Now, the other reason I show this though is because there's a lot of talk about interest rates and bonds and what's going to happen, the Fed raising rates and everything else. Well, if you keep bond maturities short, meaning you don't own long-term bonds, you don't earn a lot of interest, but you also don't have a lot of risk in the price of the bonds.
So, these red line and blue line are represented by very short maturity bonds, government bonds are mature in less than three years. Don't fluctuate a lot, also no pay a lot, but again, you kind of see where that risk lies when we have a rising rate environment. Now, this is going back to January of 2020. And we can see the performance of the bond market when we had the COVID kind of correction in March, April, longer duration bonds.
What happened, yields came down, so price of existing bonds went up in value, longer maturity bonds, longer duration bonds, again, more impacted by that and the performance that they experienced during that sell-off. You can see it's a little volatile there for a while, just because the market was reacting to the government shutdown and everything else that was happening, but positive performance. Shorter duration, shorter maturity bonds, not a whole lot of risk when it comes to interest rate movements, so they don't react as much either. But you can see positive territory going back nearly two years on those.
Actually, all bonds are in positive territory when we're looking at it on these benchmarks going back nearly two years. Now, where do we go from here? So just recap, it's been a great year. 2020 actually started off very good, had COVID, and then ended very, very good.
So if you actually weren't paying attention at all during 2020, maybe you wouldn't even realize what happened. 2021 was a continuation of that. What do we see happening in 2022? Well, these are the things to pay attention to, and these are definitely the things that we are paying attention to on your behalf.
So we'll be watching closely economic growth. I'm going to show you where we're at today in the economic data. Also, the jobs market. What's the outlook for that?
Earnings. Earnings are a key component to the stock market. What about inflation? What impact is that going to have?
And then interest rates. These are all different issues that are all going to have impacts on the market in 2022. So let's start with the economy. Well, from a high level, our economy, we measure that in the United States with what's called the gross domestic product.
That's the value of all the goods and services that are produced here in the United States on the annual basis. It's sitting at $23.1 trillion. That is a crazy number when you think about it. This graph, this is from the St.
Louis Federal Reserve, and these will all be the same. I'm going to show a lot of these Federal Reserve graphs. So we're going to see the value here on this access and then time at the bottom. Any of these gray bars, those are recessions.
So anytime you see a gray bar, that's recession. And yes, that's the 0809 recession, COVID recession, very small, just few months. And you can see the impact though that it's had on GDP during those recessionary periods. Now we've recovered, look at GDP, $23.1 trillion.
Well, what is GDP made of? Because our economy is continuing to grow and expand. Well, how do we measure that value of all the goods and services? But what are all the components that go into it?
So here's the GDP formula. C is consumption. I is, it's a private investment. So really a way to think about that's business investment.
G is government investment in spending. And then this last X minus M, that is the net impact of, it's actually our exports minus our imports. So the way, the way this formula shakes down is on the right. Nearly 70% of our GDP.
So the $23.1 trillion is consumption. That is what we as individuals spend money on. The rest, you can see government spending, business, business spending. And then the impact of our exporting activity actually reduces our GDP because we import here in the United States more than we export.
And this is what gets us to the $23.1 trillion. Well, if nearly 70% of GDP is consumption, then I think it's prudent to really get a handle on, well, how healthy is the consumer? Because if the consumer is doing well and the outlook for the consumer is good, then I believe then we can feel good about the outlook for the economy. And if the outlook for the economy is good and people are spending money, well, that generally means corporate revenues are going to be higher and earnings are going to be good.
Well, if earnings are good, stock prices typically follow and stock market performs well. So from a kind of simplistic viewpoint, that's why we talk about this, you know, this different information. So here are the graphs on those different components. So consumption.
This again, from the St. Louis Federal Reserve, we can measure that personal consumption expenditures. It's going back five years. Just wanted to zoom in on it.
You can see V-shaped recovery. COVID, there's the COVID recession, gray bar, and we've come out of that right all time highs, consumption, all time highs, private investment. So again, business kind of investment, all time highs, V-shaped recovery, government spending, well, government spending really didn't slow down at all. And tell by all the stimulus and everything else.
In fact, we're running budget deficits. Very little impact on government spending. That's been a pretty stable line here over time. And then our net export activity continued to import more than we export.
And so that's the impact that's having there. These two, though, very important, personal consumption expenditures and then private domestic investment. Those pay very close attention to. This graph is also, this is what's called the output gap.
So blue line. This is the potential gross domestic product here in the US. So this is what, based on trend line, what we should be able to produce. And then the red is our real gross domestic product.
So what we actually are. And there's a gap there. So this is net of inflation. So the billions of dollars is a little less because they're factoring inflation comparing this back into 2012 dollars.
But there's a gap there. We're not running the US economy is not firing on all cylinders just yet. Last time we got close to that was in 2018. You can see there was quite a gap there for some time.
And this factors into fed policy. You know, as they look at this and, you know, as we come out of these recessions, they, they vary their monetary policy based on what the potential is relative to what we're doing. And we're still not there. Now they can see this gap is closing.
And that's part of the reason they talk about their tapering and maybe even raising interest rates in 2022. Well, this output cap, why is it closing? Well, COVID is becoming a thing of the past. You know, we're hearing some headlines, especially, you know, around Thanksgiving about the new variant, but more more as more time goes on, more headlines are coming out that the new variant is less of an issue.
Even the vaccines. I think data's been coming out that says if you have the booster, very well protected against the new variant. So that is part of the reason why the market's been rebounding here lately. And this is some high frequency data.
So the data that just changes very rapidly, very quickly. And what this is looking at four different areas kind of COVID crisis. Okay, how much did credit card debit credit card transactions drop, what the low 34% relative to where they were at a previous peak hotel occupancy drop significantly people were traveling restaurants essentially were closed. You can see the impact there and then airline traffic kind of similar situation.
Well, where are we at today? And this current is looking at, you know, where we were, you know, compared to the low, but also compared to where we were in 2019. So if you look at December of 2019 and then compare it to December of 2021. Okay, so let's kind of compare it to a normal period.
Well, consumer transactions well above where they were. Hotel occupancy slightly off. People are going back to restaurants slightly off airline traffic, not quite where it used to be, but getting much closer. So part of the reason why the economy potential out of GPL output is improving is because things are kind of getting back to normal.
And then too, we've got, you know, we've got kind of COVID being less and less of an issue than that we have in the past inflation and everything else is kind of picking up. And we're seeing that. Let's talk about jobs. I mean, jobs key component for the health of the consumer because if people don't have jobs, well, they don't have money to spend.
If they don't have money to spend, well, then they're not consuming as much, which means that reduces GDP also reduces corporate revenue, reduces corporate earnings, and it impacts the stock market. So job market, one of the key things to be paying attention to whenever we're looking at forecast for the economy and the stock market. This is going back five years. This is job total employees.
So we peaked here in the United States, 152.5 million in February of 2020. We're at 148.6 million. So there's a gap about 3.9 million jobs are needed to get back to pre pandemic levels. But you can see the improvement that we've had.
We had quite a spike down with the government shutdown and people being laid off and furloughed. And then we've had a nice recovery since then outlook. They're very good for the jobs market and it's because job openings are phenomenal. So back kind of prior to COVID, the high and job openings, 7.5 million job openings in 2018.
We're at almost 10.5 million job openings today. So there are companies that want to hire, which is a good sign. I mean, if companies are wanting to hire, they're saying, Hey, we feel that there's a lot of demand for our goods and services. So we need people to execute and deliver those goods, deliver those services and we can't find them.
So we're hiring. Well, that's good. That's good for consumers because people need workers. Good for the economy.
Are people still kind of claiming unemployment because we're still a little shy on total employees? Well, that number is continuing to decline. So this is the four week moving average of initial jobless claims. This is when people file for unemployment employment.
It's kind of stay on there. That's Pete in March of 2020 at 6.8 million people has been slowly trending down 238,000, which is basically very close to where it was prior to COVID. So again, and a part of my thesis why things are getting back to things are getting back to normal. This is long term as people stay on unemployment longer term.
So that's when they first initially filed that last graph. This is when they stay on it longer term. Not quite to where we were pre COVID, but getting close to that. You can see again, a very large spike, but then the trend has been in the right direction with this economic data.
The most important thing to look at is not necessarily the absolute level. Well, important. It is the trend. What direction is the data going?
Because what we're looking for is inflection points and we want to see a trend change. Now, not just one month. One month does not make a trend. We want to see a trend change over time.
This is why we analyze these graphs over longer periods of time. Household net worth 134 trillion is where household net worth is today. Here's pre COVID that kind of spikes there and then kind of post COVID. So households are actually in very good shape.
Their assets minus their liabilities gives us their net worth all time highs there and debt service. So of the debt that households have the service, though, the payments interest rates are low, the payments are low. They were lower earlier, but still historically low levels from a debt service level, which kind of bodes well. That tells us that people have more discretionary income to spend on other things.
So this is previous peak back in 06, 07, 08, because see how that debt service payments mean now we're at today. People have more money to spend on other items or save it. Nothing wrong with that either. Now earnings, key components of the stock market because stock prices are a function of earnings.
2021 estimates right now are $206 a share for the S&P 500. So essentially what, how they calculate that is there's 500 stocks in the S&P 500. They're not equal rate weighted. They're weighted by their market cap.
So essentially the size of the company and the larger the company, the more weighting they have. Top 10 stocks are actually nearly 30% of the S&P 500. So those top 10 stocks, 30% of their earnings kind of count towards this earnings per share figure. That started the year.
So when I did this presentation a year ago, the estimate for 2021 was $170. So earnings have just been phenomenal this year and that has helped fuel the rise in stock prices. 2022 earnings, they started the year, but $195 a share. So at the end of 2020, the outlook for 2022 was $195.
Now it's $222 based on these are analyst estimates and then 2023, $243. So market is paying very close attention to corporate earnings and rightfully so. Earnings have been great. Now what about inflation?
I mean, we've been hearing a lot about inflation, especially as the Fed talks about interest rates and what they're going to do with it. Well, this graph is inflation going back 50 years and we've got different measurements of inflation. So you have headline CPI, which is this blue line and headline is includes food and energy, a little bit more volatile. The core CPI excludes food and energy.
It's a little bit more stable. You can see as the blue and they follow each other closely, but blue more volatile than the dark line because of those. That's why they measure it in both ways. 50 are average 3.9% on headline and core 3.8%.
Again, as I mentioned, they follow each other very closely, but lately we're running at 6.2% headline in core at 4.6 and energy as a component of headline up 30%. This is over a previous year. So energy, we're seeing a big impact on inflation. Now I gave my market update back in October, my quarterly update and talked about energy and the estimate for production versus consumption is the outlook is improving in 2022.
Production is actually starting to eclipse consumption. At least that's the outlook, which should help energy crisis, which I believe is going to have a nice impact on inflationary pressures in 2022. But that's where we're at. This is what the Fed's looking at when they're looking at inflation.
Now, inflation, though, it feels bad. It's like, okay, well, what do we do about it? Well, we need to invest our money, our assets, and be able to maintain our standard of living. As we go through the planning process, we're always talking about inflation and making sure that we're modeling in a rising cost of living just to maintain your lifestyle.
And those figures, they'll change. We use an estimate about 3% in the financial plans that we run. And the average for everybody is going to be a little different because it's all based on what you spend your money on. But we have to invest the money, though, to offset inflation.
Right now, I showed you the bond market. Well, if we put everything in 10-year government bonds, essentially, that's considered no risk because the government should never default. They'll pay their interest payments and they'll pay the principal back. We're going to make 1.5% a year.
Right now, with inflation, it's plus 6%. You're going backwards, not able to maintain your standard of living. So now bonds have a place in the portfolio, so not saying that you shouldn't own bonds, but you also need to own stocks. Everyone's situation is different.
Again, that's why your planning team goes through and adjusts your portfolio based on your specific risk tolerance and ability to handle the volatility of the stock market. But we believe stocks, though, do provide a very good hedge against inflation and again. And here's the data to support that. So what we've got, four different inflation regimes.
So we've got high and rising inflation. So that's this graph. We've got high and falling inflation. So, and by high, they say 2.5% inflation on CPI and rising.
Bottom left chart here, low and rising inflation. So it's below 2.5%, but it's rising and then we have low and falling inflation. Well, of all of those regimes, the green kind of bars, those are stocks. You can see, I mean, stocks have been very consistent performers in all of those scenarios.
Commodities, gold, real estate, I mean, they do different things kind of based on what's happening in the inflationary environments. Cash and bonds, those can be okay based on where interest rates are at. But again, stocks have been more consistent and one of the better places to be invested in inflationary environments. Now, the other thing that we're afraid of, though, when it comes to inflation is because so many of our clients remember the late 70s and early 80s.
And that was a period of stagflation. The economy wasn't very good and we had high prices and we had interest rates rising. And it just was not a good scenario. Well, we're not in that scenario today.
We're in a reflationary environment. And that's a good thing. So we have accelerating economic growth. So I showed you that GDP chart.
That's accelerating growth. Low unemployment. I mean, right now, the unemployment rate is in the force and it's improving every month. We're adding more jobs.
So unemployment, not an issue. It's not increasing. We have wages going up. There's an article I read recently in the Wall Street Journal and it's a survey, economic survey that they do.
And they're saying one of the biggest issues that they're running into, this is a survey of corporations, is their budgeting. Corporations are budgeting for a rise in wages next year. And that's a good thing. I mean, companies have great revenue, phenomenal profits.
They can afford it. People have more money to spend. They're able to kind of maintain their standard of living, hopefully be able to stay a little bit more. And it flows through the economy.
And we have asset prices going up. So you have real estate going up. I mean, everyone's seeing that right now. You've got your stocks going up.
You've got used vehicles going up. I mean, that's kind of a supply chain issue, but you've got assets. Things you own are all appreciating. That's what we're in.
We're in a reflationary environment right now. And that is good. That is typical of what we see coming out of a recession. And these reflationary environments, I mean, they're all regimes are a little bit different.
We're kind of running into a little bit higher inflation than we've had over the past two recessions, just because I think part of it, the COVID situation and what we're running into is supply chain has caused some problems. And also there is just some shifts kind of within our infrastructure around energy that's kind of causing some of the energy prices to go up. I mean, there's this big push towards renewable and sustainable energy sources. And a lot of the major energy companies, they haven't been reinvesting as much into the traditional energy sources.
And so like rig counts are down and some of that. So that impacts energy prices in the short run. But yeah, what we're seeing though is this reflationary environment, rising asset prices. But we're also seeing increase in prices too.
Food prices are going up, prices at the pump. But you're able to offset that because wages, assets, everything else is going up as well. Now, eventually, the Fed will kill inflation. At least that's maybe not their goal to kill it.
They want to slow it down and they will do it via rate hikes, but it takes a long time. And it's not something they just will shoot through the roof on interest rates just to kill it. Because again, we want this inflation, this reflationary environment. I think this very good example of kind of what we'll probably see over next several years is a similar situation that we saw here in the US in 2003 through 2007, which is very bullish for the stock market.
As rates go up bonds, they will have, again, they have their place within the portfolio, but they will kind of struggle based on the length of the bond, the type of bond, and everything else kind of related to that. Now, what is the outlook for interest rates? Well, right now, the market is pricing in three interest rate hikes in 2022, May, September, December. And this is how we can measure this.
This is from the CME Group. And this is the 30-day Fed Fund's futures. And so this is where investors basically are discounting interest rates in the future. And if we subtract this number from 100, we kind of get the implied future interest rate.
So May of 2022, so we take 100 minus this, we get 0.26. So that's a quarter percent hike. That's how investors are kind of positioning where they think interest rates are going to be in the future. So this is what the market thinks is going to happen with interest rates on what the Fed is going to do.
So let's price down. This is why I'm showing that. So we've got May, we've got September, we're drops down to another half percent. And then again, towards the end of the year, another quarter to get us to maybe 0.75 end of the year.
Will that happen? I don't know. And the only reason is because the Fed right now is talking about tapering and possibly increasing their tapering. That is essentially what they're doing is their quantifying, they're going out and they're buying bonds, essentially giving liquidity in the market.
So they go out, they buy the bonds, they deposit cash in the banks, and the banks have that money to lend. Well, they've been slowing down the amount that they've been doing that, and they had a goal of $15 billion a month to reduce it by to get it to zero by June of 2022. Because they would stop their quantitative easing before they would raise interest rates. Well, now markets anticipating they might speed it up a little bit.
And that was based on some comments that Chairman Powell said that they're thinking about doing that maybe a little bit quicker. But the market reacted to it now, the market rebounded. And it's because interest rates, these aren't a thing to be scared of. The interest rates are okay to people actually make some interest on their money.
But we've also been through this before. Through 2004 through 2007, the Fed increased the Fed funds rate from about one and a quarter, all the way up to five and a quarter. It's a four percentage points. And if you were to talk to somebody today, they think that would just probably kill the stock market completely.
Well, the market from 0.4 to 7 went up 51%. This is measured by the Wilshire 5000, which is actually 5000 stocks, even a broader benchmark than the S&P 500. It's volatile, it has its fits and starts. But the economy can support higher interest rates.
And we're in a period right now where I believe it can. Now, will the Fed do that? I don't know, because there's a lot of things that the Fed's going to be very fluid with. And they may not actually increase rates as much as the market is pricing in, which could be one of the positive catalysts to drive prices, even actually a little bit higher than my forecast.
But we've been through this before. If that has increased rates, it does not necessarily just kill the stock market. Again, 2015 through 2019, they were zero, raised them to 2.4. Stock market went up 53% during that period.
Yeah, it's volatile periods in there. But just raising rates just doesn't just kill the market. So I think markets will react. They will react on a very short-term basis.
But they will bring it back to what is the most important things to be paying attention to. And that is health of the economy, that is how strong is the job market, and that is what are corporate earnings looking like? Because corporate earnings, key component in the value of the stock market. So here's our forecast.
So right now, this is the market multiple. And I get a lot of feedback. People like to see these forecasts. They like these market multiples.
And we will update this throughout the year. In December of 2020, I shared my forecast that we would be probably close to 4300 in the S&P by the end of 2021. Well, we're at nearly 4700 today. And it's because earnings just kept improving, which adjusted the forecast higher.
And the market reacted in a positive way to this. So we'll update this as our outlook changes, as the numbers changes. But right now, expectations earnings for 2022, $222 a share. And 2023 earnings, expectations, these are analysts forecast, $243 a share.
The reason I share both is because as we go through 2022, the market will start looking towards 2023. It's future looking. So about halfway through 2022, the market starts to, it's looking ahead and saying, okay, well earnings for the next 12 months will now be incorporating 2023 earnings. So we have to kind of look at both when we're looking at our forecasts and the market multiple.
It's still hanging in at 20 to 22 times earnings. That's been very consistent. Now, as the Fed raises rates or as interest rates go up, that's where this multiple could be impacted. And rise in rates could have an impact on the multiple market right now, though, is pricing in three rate hikes in 2022.
And it's not increasing. It's not changing impacting the current market multiple. So here's the math behind this. So we have an S&P closing price on 12, 7, 4,686.
So if we take 20, 22 earnings, we multiply it by 22. So 22 times that gives us a year end price target of 2021. So just in the next few weeks of almost 4900, which is just over 4% higher. It's a few weeks.
You know, there's a lot of things that can happen in a few weeks, but that's just the market math, the multiple behind that. And the reason is because markets are pricing in expectations for 2022. So by the end of this year, it's pricing in what we expect to happen in 2022. So by the end of 2022, it'll start to price in 2023 earnings.
So if we apply the same math, we say, okay, earnings expectations now are $243. We apply this multiple. That gives us a year end price target of the S&P 500 of 5,346, which is 14% higher than we're at today. And I believe that's possible.
I mean, this is the high end of the range, but this is where the market's trading at right now. And when we look at the health of the economy, we look at the strength of the jobs market, we look at wages are going up. I don't believe inflation is just going to derail the economy by any means. And I don't think the Fed is going to have to raise rates as much as even the market's expecting.
I think the Fed might even slow that down a little bit because they don't want to kill off any growth. So if it starts to moderate because energy prices start to moderate supply chain issues start to moderate, they start to see less of an inflationary impact. I don't think they're going to raise rates nearly as quick as maybe the market's pricing in. This multiple can hold and we can see earnings sustained, which gives us a very favorable outlook for 2022.
And using that same percentage gain, that would put us over 40,000 on the Dow. I had my Dow 30,000 hat last year. That was what we're talking about, Dow 30,000. In the end of 2020, we've surpassed that.
We've been bouncing around this 35, 36,000 on the Dow. The Dow is only 30 stocks. So there's some large stocks that impact the Dow. S&P 500 is a little bit more broadly diversified.
So use that as a benchmark a little bit, but the Dow's wanted to talk about because the number is high and it goes back very long term. Dow 40,000 would be the number to go along with that. And I actually had a Dow 40,000 hat. A client saw it and asked for it.
So I gave it to him. So I don't have that Dow 40,000 hat. I ordered it and hasn't arrived yet. But Dow 40,000 S&P 5,300.
That's our outlook today, basically information we have. And look, the market keeps, it will surprise you, there is no shortage of negative headlines. We've had all year the stagflation talk, which is coupled with the reflation. Everyone's afraid of stagflation.
That's what we saw in the late 70s, early 80s. That's when unemployment's going up. Wages are going down. We have asset prices, asset values going down.
But we have prices, food, energy going up. And people, it interest rates going up. People are getting squeezed. That's stagflation.
Economic growth low. That's not happening. We have the opposite happening today. Earnings have been great.
Continue to improve. And I think that look actually is going to be a continued improvement into 2022. Rising rates, I mean, people are afraid of that. Market will react to it.
I don't think they're going to rise as quick as market pricing in. Energy costs, you know, we'll see. We're monitoring a ring count very closely. Also, the production versus consumption outlook.
Looking like that's going to flip. The recovery from COVID. We were consuming way more than production, especially on a global basis from COVID all the way through this year. That is looking to flip in 2022 should help energy.
You know, tax increases. Much, much more mild than any of the initial proposals. We're going into midterm elections next year. I don't think we're going to see any significant changes.
You know, that was a theme at the end of last year that the, from a political side that we would not have significant kind of changes or policy changes. And we're kind of seeing that still supply chain issues. I think we're going to see that alleviate not going to be quite the same, especially as we continue to open up. It's impacted in certain areas.
We see that in the automotive market significantly. Big impact there. Not so much. A big majority of the U.S.
economy is service based supply chain issues, less of an issue there. Fed tapering, they're going to be releasing some comments here shortly. We'll continue to monitor their situation on that. I think the market's pricing in three rate hikes already.
So it's not a surprise if they continue that path, but I think it'd actually be a positive surprise if they do a little less than that. And the debt ceiling talks, they continue to improve as well. And so all of that has actually been happening this year. And we've gotten through all that markets at a, you know, near all time high.
And again, why do I think it's going to continue next year? It's all about the consumer. More jobs we have and people are getting paid more. I mean, it's happening.
Look at the data. Wages are going up. That equals more spending. More spending equals higher corporate revenue, higher corporate revenue equals higher earnings, equal higher stock prices.
I mean, that is the math around the market. It doesn't have to be more complicated than that. You know, there's a lot of day to day movements. A lot of day to day headlines.
But when you shake it all down and bring it back to the fundamentals, this is kind of what it all looks like. Well, on behalf of Bill and all of the colleagues here at Team Wells, I want to thank all of you for joining us today. We appreciate the trust and faith that you put with us and your team at Keen Well Advisors. We are always honored and humbled to be working with you.
And we're here. If you have any questions, any concerns, please reach out to anyone at Keen Well. Whether it's myself, Mr. Keen, we're always available to chat with you about anything.
It's on your mind, whether it's investment related, about your personal situation, anything that you'd like to have a conversation about. As usual, your well-being is of utmost importance to us. So please stay safe having Merry Christmas, a joyful holiday season. Looking forward to seeing all of you in 2022.
And to close, we have a very special guest today. We have the Dickens Carollars. They are celebrating their 38th season of holiday caroling, and we are excited to have them join us. So without further ado, the Dickens Carollars.
Happy holidays from the Dickens Carollars to all of our friends over at Keen Well Advisors. We're sorry that we can't be with you in person, but we're happy to provide this virtual performance. Have a wonderful holiday and a happy new year. Chasnod's right.
Jack Frost nipping at your nose. You'll tie carols being some mild fire. Full stress of wack-ass gimos. Everybody knows.
A turkey and some is oto. Help to make the season bright. Tiny tuts with their eyes all above. I give heart to speech.
They know that Santa's on his way. He's loaded lots of toys and goodies on his sleigh. Every mother's talk. You see a friend here really know how to fly.
And so, offering this simple phrase to kids from 1 to 92. Although it's been said many times, many ways. Merry Christmas. And so, I'm offering this simple 1 to 92.
Although it's been said many times, many ways. Merry Christmas. Merry Christmas. We wish you a Merry Christmas.
We wish you a Merry Christmas and a Happy New Year. Good tidings to you wherever you are. Good tidings for Christmas and a Happy New Year. We wish you a Merry Christmas.
We wish you a Merry Christmas. We wish you a Merry Christmas. And a Happy New Year. Steve Sandusky and Belay Advisor are not affiliated with Keen Well Advisors.
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