In December, global equities finished the year with a strong performance as investors’ expectations for strong economic and earnings growth in 2022 allowed them to look past skyrocketing COVID-19 cases, heightened inflation pressures, and continued supply chain challenges.
After months of speculation, the US Federal Reserve announced plans to fight inflation by hastening the tapering of bond purchases and hiking interest rates up to three times in 2022. This declaration helped propel interest rates higher.
Supply chain issues in December continued to restrict and impede sales. Many customers could not obtain their desired products for Christmas as restocking and labour shortages hampered sales. We expect earnings calls to mention this business and logistically issue as a reason for lower than anticipated sales. Many logistical management organizations expect stretched and lengthened supply chains to continue for the next 8-12 months as business continually shifts from under-stock to no stock for seasonal items.
With December’s month complete, Vulcan will be looking ahead to fourth-quarter earnings and assessing financial performance against our valuation models.
Most equity analysts forecast year-over-year EPS growth of over 20% for companies included in the S&P 500 Index. This would be the fourth straight quarter of EPS growth above 20% if accurate. Given the inflation worries and continued supply chain challenges, there will be a period of potential market instability and investment opportunity for Vulcan clients.
Leading into 2022, our fixed income bond duration is calibrated correctly, and our equity holding is in stable industries with seasoned management. Our investments are in cash flow positive businesses with operating models that are robust and global. As long-term investors, we are comfortable our investments will appreciate and dominate their respective industries.