Year End Market Update: Looking Forward

On behalf of the entire team at O’Donnell Wealth Management, we would like to wish our many clients throughout the country, and all Cody Living readers, a very Merry Christmas and a prosperous and Happy New year. Thank you for your trust, confidence, and loyalty. It is truly an honor to serve you all.

With the rapidly approaching conclusion of yet another year, we are looking forward to uncovering future opportunities in the year to come, as we prepare for the challenges that will inevitably reveal themselves.

We believe the markets to be overvalued at present. This, of course, does not mean that they cannot continue to go higher in the short term. History has shown us, however, that the further a market moves away from fair value, the greater the correction, or move that returns the market to a fair value range. This is true with markets that have been overbought, as well as markets that have been oversold. An important thing to remember is that a market can remain irrational much longer than one may be able to remain solvent. Furthermore, the market does not know, and does not care, what price you paid for an asset.

The higher the risk profile of an asset, the higher the probability that the asset will experience greater price movements, both up and down. This price movement action is referred to as volatility. One way to mitigate excessive or unwanted volatility is through diversification. An important, often misunderstood concept regarding diversification, is the concept of owning non-correlative, or negatively correlated, assets. For example: single company risk can be reduced by owning many different companies, however, if all those companies are part of the same industry or sector of the market, there may be little to no effect on the reduction of volatility. To experience a meaningful reduction in volatility, one would need to include non-correlating or negatively correlating assets. These are assets whose prices or values typically do not move in the same direction, or even move in opposite directions on a short-term basis.

These strategies are just a couple of ways that we work to reduce risk and volatility in client portfolios at O’Donnell Wealth Management. We believe these strategies will prove to add value as market conditions become more challenging in the year(s) to come. We believe that investors would be wise to temper their expectations regarding returns in the coming decade and not chase after overly risky assets and assets with inordinately high dividend yields. With that said, we believe there will be plenty of opportunities that arise; but they will surely require much more extensive research to uncover and much more due diligence to vet.

We believe that several factors will contribute to the creation of much more challenging market conditions in 2021 and going forward. Valuations in many asset classes are overextended in the short term. For those valuations to be sustained and to extend themselves further, i.e., the markets continue to rise, economic conditions would need to continue to improve. That is unlikely in the face of continuing supply chain disruptions, rising inflation, rising taxes, and rising federal debt.

Unprecedented, out of control, government spending has had an effect like that of injecting steroids into a patient’s knee joint that can only be fixed by surgery. The steroid shot may provide some temporary relief, but the problem still exists, and in fact will worsen with the passage of time. The locking down of our economy was one of the greatest displays of ineptitude ever shepherded by our government class. Now in response, they bury generations of “We the People” under trillions of dollars of debt, while creating out of control inflation, massive worker shortages, and inflated asset bubbles.

These misguided policies will eventually result in a major repricing of assets. This repricing event will create a multitude of opportunities. Periods of disruption in the past have created opportunities for “stock pickers”, or those skilled in identifying future value in undervalued assets. This is a practice that our firm focuses on, not just during times of disruption, but also during bull markets.

Recessions and market corrections can be painful, but they serve a purpose. They extinguish excess speculation in the system. Not unlike a naturally occurring forest fire that removes underbrush and cleans the forest floor of debris while opening it up to sunlight and nourishing the soil. The fire itself is a scary and dangerous event that will undoubtedly produce casualties, but it makes the forest healthier in the long run.

There is an old saying on Wall Street: Don’t confuse brains with a bull market! This is not our first rodeo at O’Donnell Wealth Management. During challenging times, we draw on our decades of experience in investment management, finance and banking, to help us protect and grow our client’s wealth.

Stephen P. O’Donnell Sr.
President & CEO
Director, Portfolio Management
O’Donnell Wealth Management

Stephen P. O’Donnell Sr. is President & CEO of O’Donnell Wealth Management, an asset management and financial planning firm located at 1306 Sheridan Avenue in beautiful Cody, Wyoming. Steve has two decades of experience, having worked as a portfolio manager for some of the largest firms on Wall Street. Steve Sr. can be reached at 307-586- 4279, email: steve@odonnellwm.com.

This report was prepared by O’Donnell Wealth Management and reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

Investment Advisory Services Offered Through Saxony Capital Management, LLC
Securities Offered Through Saxony Securities, Inc. Member FINRA/SIPC