Welcome to Make Your Money Matter, the show that aims to change the way we think about financial advice so you can make better financial decisions. Brad Barrett is a managing director and partner at One Capital Management, a wealth management firm serving nearly 1,500 clients nationwide, with over $2.5 billion in assets. They are a group of advisors dedicated to ensuring their clients achieve their investment and retirement goals. And now, here's your host, Brad Barrett.
Welcome to Make Your Money Matter, the show dedicated to helping you create a better relationship with your money. I'm your host, Brad Barrett. And it's my goal to help distill the best ideas when it comes to your finances so you can make more confident money moves. Here at One Capital Management, our mission is simple, to help our clients and you listeners take control of your finances and build the life you deserve. Friends, today the challenge is no longer the access to information, but rather it's finding the right information, and more importantly, how that information applies to you. And that's my commitment to you here today on the Make your Money Matter podcast, because after all your money matters. And before we get started on this week's episode, to find out more about me or my team here at One Capital Management, you can go to our website at onecapitalmanagement.com or give us a call (805) 409-8150. And if you are on the website at onecapitalmanagement.com, you can click on the media tab and there you can download and subscribe to the Make Your Money Matter podcast. You can also download the podcast on any other platform that you would otherwise download a podcast, whether that's the apple app on your phone, Google podcast or Spotify, and leave us a comment. Let us know how we're doing, it's always good to get feedback. And as I say each and every week, if you like the show, share with someone you like, and if you don't like the show, I guess, share with someone you don't like.
I'm excited for today's show. This is gonna be a little bit of a longer one because I wanna go through a lot of topics that we've been discussing here at One Capital Management within our investment committee, with our clients and our reviews. And I think it's a very topical one because we're sitting here essentially towards the tail end of February in what a, six weeks of 2022, it has been right. And right now, some of the highlights we've been going through that I wanted to share with you today, gets shown in our playbook, something we deliver to our advisors every quarter. And I wanted to write it for the podcast because I think it's really great information for you to hear as an investor in this world, someone who is caring about their finances and look personal finance is a lot more personal than finance. I think we all can agree with that. So, you hear me say all the time that the behavioral psyche of how we look at our money matters, but some facts and some data matters as well. So, let's get into it.
As many of you've seen the end of 2021, we saw equity markets continue to accelerate, and those are largely driven by extremely high earnings growth. And we're seeing a little bit of a pullback into January and February of 2022. And there's a couple things for that. Obviously, we have a geopolitical situation going on currently between Russia and the Ukraine and The Black Sea and all this stuff that's going on there as well as inflation rearing its head. Now inflation, it reflects high demand, it's important to know that against short supply. So, there are definitely bottlenecks in the supply chain and labor, something I've been talking about at length over the past eight months. And we're gonna talk about that a little bit more in a second, because I want to go dissect and go through that a little bit deeper here now that we're heading into the latter part of the first quarter of 2022.
We're also seeing strong consumer reports, but dwindling savings should bring the last leg of labor back to work something we'll note here in a second. You probably listened to the podcast a couple weeks ago where I talked heavily in two different podcasts around the workforce and specifically wage growth and why that matters in inflationary time periods. If you haven't, I strongly suggest going back and listening to those, cause we talk about that today. It'll be really important one as we look ahead for inflation and look, I think it's really important as we highlight and set up the next few minutes here on the podcast, as we will, we are expecting to see some bumps in the road for equity markets ahead. And I think that's a great place to start, cause I think that's on everyone's mind right now is we see the markets kind of go up and down and red and green. It's like Christmas all over again, it's already been six weeks. But we can always remember that as always with capital markets, the long road has some bumps.
If you look back over the past four decades, specifically over the last 42 years, the annual return in us stocks was positive despite entry year declines, averaging 14%. Think about that out for a second. So, markets recover and follow the growth generated economically around the globe so, the start of 2022 reminds us a little bit that the market doesn't always go straight up. And I think a lot of people need to be reminded of that pretty consistently. When someone looks at a 10% rate of return, we have to be honest with our ourselves and we tend to think, Hey, I probably got 10% for the past five years. It really is not the case. You maybe got a 15%, a 7%, a 25%, a 2%, but the average was 10%. So, reminding ourselves that markets go up and down and re looking back over the past four decades, that we're seeing a positive return in the S&P 500 in particular as an index, despite in your declines averaging about 14%. Think about that for a second.
So, we gotta remember that there are bumps in the road and the bumps don't mean devastation. I still think you heard me say a lot, we have this hangover from 2008, which by the way, was a pretty intense situation, which was only about seven or eight years after the tech bubble in 2001 and being an advisor for nearly 18 years, I've been around a lot of that. And I've noticed clients, investors, the investor behavior across the board, through all the studies that we are privy to and read and I wanna share with you on platforms, such as this. I've noticed that investors' behavior has become a little more erratic when we see some volatility or some correction. Market equilibrium, which is essentially supply and demand, getting back to net neutral, a correction here, or there is actually something normal in the market. Yet we react right away, either emotionally, or maybe we're making that call and say, Hey, I'm really fearful. I want to, I wanna sell and do that kind of stuff. And it's really important to talk through that with your counsel. So, remember looking back is a really good way to understand how to look forward. Now, as always past performance is not guarantee future results, but there's a lot to be gleaned from behind us as we look into time periods such as this and that leads me into another topic around the economy as a whole.
The U.S economy or the economic recovery, if I will, is still traveling and what we see is near war speed. I mean, you look it real GDP, real gross domestic product, it increased at an annual rate of 6.9% at the end of the fourth quarter of 2021, 6.9%. Now, according to the advance, if you look at the estimate released by the bureau of economic analysis, real GDP, real GDP increased by 5.7% in all of 2021. So, this near 7% increase in the fourth quarter leads the actual growth of the economy just below the trend growth. By the way, that's what we would have expected had it not been for COVID. 7% would've put us on the same trend line. So, we are firmly ahead of the peak output of 2019, when you look at it from a GDP standpoint. Now that's the good news, here's some of the bad news.
There are headwinds that we face. We are still in the middle, if you will, of COVID 19 with Omicron and less fiscal stimulus right now, it will pump the breaks on the economy. It will have a decelerating effect on the rate of growth. The drop off in demand at the end of 2021 that we saw was largely due to the spread of Omicron. By the way, I mean, the variant was affected. It affected the demand more than it did the supply across the board in the economy. So, 2022 to us looks to bring some additional headwinds, as we're all seeing. Right now, we're seeing it right outta the gate in the first part of this year, everything from geopolitical that I mentioned earlier to inflation discussions, which we'll talk about. But it will bring headwinds as we head towards what we're gonna consider slower economic growth, higher interest rates and higher wages, which brings us to one of the perplexing issues the day. And something again, I spoke about heavily a few weeks ago, and that is labor.
Now again, just to remind everyone labor year over year, wage growth has a lot to do with what we're seeing in the inflationary environment. The surge in GDP, Gross Domestic Product has been mirrored by rebound in the labor markets as the economy reopens. Now after shedding and astonishing 22.4 million jobs between February and April of 2020. 22 million jobs left, gone bye-bye between February and April of 2020 right, when the pandemic happened. The economy has actually recovered 18 million of those jobs or 83% of the total pandemic loss. By the way, people, this is not something you're hearing in the news. This is factual data that we're trying to get out to you with different sources that we're using with BLS fact set, JP Morgan Asset Management, all this data is coming out that we're able to see and I want to share with you. So, 83% of the jobs lost in the pandemic have actually been recouped.
Now that being said, the job market recovery is not quite complete with the unemployment rate at 4.2% as of November, and now at 4% heading into January, this is all compared to a three-half percent before the pandemic. So, comparisons are important pre pandemic post pandemic, if we can consider post pandemic right now. But if you think about it, the unemployment rate at 4.2 or really right now around 4 in January, that's compared to three and a half percent before the pandemic. So, while this might suggest that a small amount of labor market like the slack in there remains, the wages tell a different story, which is why I focused on it so much a few weeks ago. Wage growth has been rising and it's at annualized rates not seen since the 1980s. So put together with surging labor demand. This suggests the employment shortfall, primarily an issue of labor supply. Again, people, this is not being talked about in the news right now, but it's important to look at how we would look at it from a fundamental economic perspective.
The labor demand, the surging labor demand, it suggests that the employment shortfall is primarily an issue of labor supply. Labor supply has been to recover as the economy reopens and has likely been constrained by again, enhanced unemployment benefits, stimulus packages, lower immigration, higher costs of childcare, lingering pandemic fears. I mean, there's a lot to this. It's not just factual numerical data. There's also behavioral traits in this as well. Fears are still out there. So, we gotta ask ourselves how long can employees hold out? When you look at wages, how long can employees hold out? And to us, we feel there's a lot of room to go as the unemployed return to work. As of December, about six weeks ago, 10.9 million job openings were available about 11 million jobs were available. Yet people continued to quit their current jobs, that number was about 4.3 million in December. So, 4.3 million people quit their current jobs.
So, if you think about how once household savings begin to erode past the point of comfort, remember, there's a lot of cash right now. A lot of liquidity has gone into the market stimulus, those packages, easy money in terms of low interest rates. There's a lot of money on the sidelines and we've seen that in the investment markets as well. So once we see household savings begin to erode again, past a level of comfort, we feel the labor force will swell. By the way this was evidence by the January jobs report. I won't go into that, but if you look into it, it's, it's pretty telling. And the us economy added 467,000 jobs in January. Again, this was as the economy weathered the Omicron wave and overall staffing charges, the labor department separately revised payrolls totals upward for late last year. Showing more than 700,000 jobs were created in November and December than previously reported. The January labor report, why I'm bringing that up. It shows a forceful return to the workforce and increase in labor supply. The unemployment rate actually ticked up to 4% as more people joined the labor force. So as supply of workers increases, we may see some relief on wage inflation. Here's the key wage growth and wage inflation matters cause we have a general rise in goods and services. We are also seeing a demand for higher paying jobs or even jobs within themselves paying more to keep key talent. All of these are going together and it's important to make sure we focus on it as a prudent money management.
Now let's talk about inflation here, cause I know that's rearing up here and we're talking about it. We've been talking about it for months. Let's go through some data, inflation, heated up as we all can see this year. Surging consumer demand basically collided with supply shortages across all major. Most I should say most major sectors of the economy. Okay, one thing to note, we are seeing it in a lot of different sectors, like in particular gasoline, all types here used cars and trucks, 49%, 37%, this is year over year inflation on those. Energy at 30%, we're also seeing airline fares, medical care, recreation, shelter, all those are 4%. So, it's very interesting to look at the note of what's being talked about as high inflation versus what's specific that we see daily. Not to say that inflations not there. It's just important to look at the data. CPI, consumer price index inflation has been accelerating since we all know the start of the summer with the latest year over year gain in CPI at 7%, which we all saw overall and five and a half percent excluding food and energy.
Now these year over year gains in inflation have been amplified by week increases in prices a year ago. But remember supply chain, supply chain issues have been the biggest problem here. In particular, the global semiconductor shortage has increased the prices of a wide range of goods throughout the economy and most notably for automobiles. So, these higher input costs have set inflation higher. And this has been amplified by a general recovery in prices of airfares, restaurants and rents basically from their pandemic lows. So fiscal support, we all talk about that for low- and middle-income households has also bolstered essentially the demand for food leading to higher food prices. They have the ability to buy the food The food's being shorted because we can't get it there, it increases the food. This is all while we're seeing a spike in oil prices to over $80 a barrel, which we saw in October and it was boosted by essentially the volatile energy components of the entire consumer price index.
So, what's important here to note is the PCE deflator, which is feds preferred measure of inflation is up more than 5% year over year. Well above the Fed's long-term target of 2%, that's that's essentially, they been their target for a long time. We believe that much of the current inflation surge will prove to be transitory back to that wonderful war heard of so much from Powell last year and the year before, but we do feel that it will prove to be transitory, including the energy and supply chain issues. However, I wanna note this and we talked about a lot in our investment committee and here at the firm at One Capital Management through our advisory group. The impacts of higher wage growth overall rising rents, and generally higher inflation should linger and this, you know, should imply inflation that is well above 2% for the remainder of this economic expansion that we're gonna be seeing here by bringing supply chain back on board.
Now real quickly, before we get off inflation, if you look at it a little bit closer, a closer look at the CPI components for 2021, the year ending 2021, which is only six weeks ago, it really highlights where the us consumer was hit the hardest. Tthey were hit the hardest we were, you and I were hit the hardest in gasoline used cars and trucks. We all heard that new vehicles, too food and shelter. Now that was all last year and we look at January the month, just ended a call, ulcer look, reveals signs of stalling out. We saw a 0.6% rise in consumer prices in January, which illustrates that underlying inflationary pressures remain unusually strong as both the headline figure and core again, excluding food and energy, the CPI rose. So, bringing the annual rate to seven half percent, the highest as we've all seen in the news the past couple weeks, the highest since 1982, however, the earlier upward pressure from rising energy prices and goods shortages faded, that is important.
Energy prices rose by a relatively modest 0.9%. It will take a significant further rally in crude oil to prevent the annual rate of energy price inflation from falling this year. And we doubt headline inflation will rise too much further from the seven half percent rate we saw last month. The strength of the core prices may have partly reflected temporary staffing shortages, largely probably due to Omicron. We saw airfares up by 2.3% month over month. And the further 1.1% gain in clothing prices reflected the earlier disruption to factories that we saw in Asia. There were also some encouraging signs underneath the hood that recent upward pressure from goods shortages is fading. And we're seeing this also with new vehicle prices unchanged, so, we're not seeing a growth there. And used prices up by a relatively small 1.5% with a new vehicle product in sales, basically rebounding strongly, we should in turn, raise a supply of used vehicles too. This suggests that upward pressure on vehicle prices, as an example, should soon fade and we suspect eventually go into reverse. Remember supply being added on it'll stall out the increase and what's what we're kind of seeing.
With the annual growth rate of used vehicles at 40%, that change added 0.25% to the overall inflation rate. But as prices fall back this year that we are anticipating the bigger weight means used vehicles will have a greater deflationary impact on the, the overall index. Again, with core CPI, inflation hitting a new high of 6% that we saw, there was little to cheer about, I would say for everybody in the rest of the report. The acceleration in rent or of shelter, essentially inflation shows no sign of abetting. With owners’ equivalent rent up basically half percent month over month again, and rent of primary residents seeing an even bigger half percent gain. So, while we expect more favorable base effects and a partial easing of supply shortages to really push core inflation lower this year in 2022, it will likely remain still well above the Fed's target for some time.
So, what we're trying to say is we're not seeing a runaway inflation. We are gonna see a little bit higher than the Fed's goal of 2%. What we're seeing right now, we're already seeing signs for it to have a deflationary effect, moving it down lower than that 7 and 6%, and which is a good sign to see heading into a new year. Now I wanna finish and put a bow on all of this with returning back to the equity markets and taking a look closer at what is driving stock prices higher. One thing I've heard from my clients and I've shared with them from our investment committee and, and those that are calling in from the podcast and, and new clients and referrals we've been talking to is one of the things is the con fusion more of just a absolute question is why in a pandemic, why in the past couple years we've had basically the world shut down. Why are we seeing stock prices still return what they are? Let's talk about it for a second. I think it's a good way to dissect this.
And let's look back into 2021, the year that just ended six weeks ago. As we all know, we saw outstanding returns in the equity markets and despite the robust growth, the valuations receded as earnings growth outpaced the equity markets. Let me be clear price to earnings ratios and what we look at fundamental analysis of a company or a sector or an industry. We're looking for a bandwidth of how much we're willing to pay today for future profits that has a lot to do with valuations. And as we saw this growth in 2021, we actually saw valuations receded, which is very interesting. So, earnings growth is expected to continue pretty much at a fast pace in 2022, they may not be at the same pace at 2021, but still fast paced. So as the recovery from Alma chronic continues, that's an interesting note to have heading into this year, the estimated year over year earnings growth rate of current year 2022 is 9.2%, which is above the trailing 10-year average annual average of earnings growth rate of 5%. Let's talk about that for a second.
Between 2011 and 2020, the annual earnings growth rate expectations, the estimates were around 5%. The estimated year over year earnings growth rate for 2022 is at 9.2% High margins support higher valuations and there are still some great companies selling at reasonable prices. Our job as an investment manager and anyone listening, who doesn't have an advisor, when you partner with an advisor, the idea is to find someone that's looking at where the value is. That is what matters when you talk about growth and making sure that the growth isn't just having this conversation of, oh, we're hitting all-time highs. The reality is we should always be hitting all-time highs. If we're not growing. That means our economy is somewhat stalling out and let's finish on more margins and valuations as it relates to the equity markets and that question of why are we seeing such growth.
Profit margins reach 13.2% the highest, since a data set that we look at began tracking the data. Profit margins reach 13.2%. The top 10 stocks by market cap are still driving the, as we've seen. And earnings contributions, 30 and a half percent and 25, almost 26% respectively. Now valuations amongst this group is high leading to what we're seeing as valuation dispersion, right. We're seeing a really high valuation in the top 10 or so companies and not so much in the latter companies and that leads many other opportunities in our opinion, reasonably priced. So, sky high evaluations are most susceptible to rising long rates. So, we need to watch the Fed’s move on reducing its $8 trillion balance sheet. If inflation, by the way, proves to be too sticky for the Fed's comfort coming up, they could allow the balance sheet to contract in an effort to push long rates higher and essentially cool, both economic activity and inflation. So relative to the earnings that companies are expected to make over the next 12 months, equities overall to us are as cheap as they were in February of 2020.
Now that may be shocking to a lot of people, but when you look at the fundamentals, that's what we're seeing. And our U.S equity portfolio here at one capital management, as an example, trades at just 17.4 times earnings and our international portfolio is that 15.7 times both near long term average valuations for their respective markets. To give you a quick context, you typically wanna find valuations in price to earnings and other areas to look at between a bandwidth of 16 to 18 times, roughly in there. We right now are trading at at 17.4 domestic in our U.S equity and our international portfolio, that's 15.7. Right within that bandwidth for further context, if you look back in the 05-06, 07 era leading into 08, and we really had this recession happen in the bubble happen for us, along with the derivative markets that went around. The reality is if you look at fundamental the price to earnings there, majority of price to earnings valuations were in the 28, 29, 30 times multiple. That is a high stock. That is overvalued. That is may not worth the money to invest in it. And we saw that leading into 08ht. We are not currently seeing that right now in our trading multiple right now within our portfolio is well than the bandwidth.
So, we're gonna manage the risk as we always will for our clients and anyone listening right now, who's talking with an advisor, maybe even manage your own money, make sure you manage the risks cause there are headwinds. No doubt, we talked about that. We're gonna talk about a lot more in the coming weeks around this, but I wanted to share some data points here for everyone listening. And to summarize a few takeaways here to us and what we've been studying and what I wanna share with you each quarter around our playbook is the economy as we all saw finished strong in 2021, but again faces some headwinds in this year, 2022, and some inflation will stick. Okay, we're not seeing a runaway inflation moving up 7, 8, 9, 10% hyperinflation type of periods. We will see some inflation stick, but much of supply limitations will abate we think, and inflation will begin to normalize. Still, maybe above the Fed's rate of 2%, but more normal and sustainable inflation that we can track.
And the jobs recovery sluggishly continues, we wanna look for accelerations in that jobs reports as savings shrink. Remember if there's cash on the sidelines, people are a little bit comfortable, they are looking for jobs, they're leaving current jobs, but we're gonna start seeing that get a little more uncomfortable as savings dwindle. And to put a bow on the equity to conversation around markets, although we're gonna see some variability and some volatility, some choppy markets ahead, we are seeing long term growth and there are still some discounts to be found in the equity markets. Managing the risk, diversifying the portfolio, actively managing it and rebalancing it are all prudent strategies that we're gonna be taking for all of our clients to make sure that we manage the risks ahead and make sure we find the discounts that are still out there.
I wanna thank you all for listening to the Make Your Money Matter. Remember before acting on anything discussed today, speak with a financial advisor and near you. And if you're not sure where to turn, you'd like our help visit us at onecapitalmanagement.com or give us a call (805) 409-8150. And until next week, remember Make Your Money Matter.
The information in this podcast is educational and general in nature and does not take into consideration the listeners' personal circumstances. Therefore, it is not intended to be a substitute for specific individualized, financial, legal, or tax advice. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a final decision.
