January 3rd, 2023
Happy New Year!
2022 was quite the year to be endured in the markets with it being the worst returning year since 2008’s Great Recession.
Depending on your asset allocation you could be down as much as 33%, or more, if you’ve been weighted heavily in Nasdaq and tech heavy growth stocks. While the S&P and Dow Jones fared much better, it’s still certain to have been a challenging year to stomach for many investors.
On the bright side: Of the 9 negative years we can look back on since 1990, 7 were followed by a very strong up year – as I highlight below in the Charts of the Month section – which gives us hope and an indication of what we might expect in 2023.
For all the challenges life brought us in 2022, I hope 2023 brings you 10x that in love and abundance in the New Year.
Below is your AllOneWealth Market & Economic Update by the numbers.
Interested in learning more? Schedule a call with me HERE.
Warmly,
Mark S Sauer
Economic Update
Inflation Easing, Home Sales, Recession Warning, China Reopens, Tax Loss Harvesting and Fuel for Inflation
Market Update
Global Equities, Fixed Income & Commodities
Global Equities: Equity markets ended a dismal year with yet another negative week, with all three major domestic indices down slightly. The S&P lost -5.41% for the month of December to end the year down -19.64%; the Dow Jones Industrial Average fell -3.63% to finish 2022 down -6.9%; and the Nasdaq declined -8.63% to cap off a year in which the tech-heavy index lost -33.1%. Developed International stocks were down -14.4% for the year while emerging markets finished down -20.6% in 2022.
Economic Update
Inflation Easing, Home Sales, Recession Warning, China Reopens, Tax Loss Harvesting and Fuel for Inflation
Inflation Easing: The Fed’s benchmark for inflation, the Core Personal Consumption Expenditure (PCE) Index, showed further evidence that prices are moderating. The monthly increase of 0.2% in November follows a 0.3% October reading. Year on year, Core PCE is up 4.7%. While the data is encouraging and continues the recent trend of softening inflation, the Fed is looking for a longer trend and/or a bigger drop before it will back off rate hikes.
Charts of the Month
Nasdaq
Our first chart of the month is weekly view of the Nasdaq Composite Index, which is approaching its 2022 low. Growth stocks, and therefore the Nasdaq, remain out of favor for as long as the Fed maintains its hawkish stance. While the upside potential is considerable once rate hikes are paused, until the Fed tips its hand, bears are in control and will likely push the Nasdaq to a retest of the lows reached in October and early November. The Nasdaq falling back under the 200-week moving average (red line) indicates further price deterioration. In order for us to consider a momentum shift and a regime change in the Nasdaq we would expect that price should cross the 50-week moving average (blue line) which it is currently a spacious distance from where we are now.
CPI & PPI
Our second chart of the month is a two year look at the Producer Price Index (PPI – Blue line) and the Consumer Price Index (CPI – Red line) annual rate of change. PPI was released in December and shows its continued trend of slowing inflation. CPI had a less dramatic ascent but has also yet to ease to the extent of PPI, suggesting that investors – and the Fed – may need to be patient before the lagging impact of rising rates appears in the actual inflation data. Hopefully, both lines move towards zero by the end of the first quarter 2023, as the lagging impact of supply chain improvements and the housing market contraction are eventually reflected in the data.
S&P
Our last chart is a table of the S&P 500 Price Only Index going back to 1990. Over this 23-year period there were 9 negative years. The table below highlights those 9 years and the year that follows. Out of the 9 negative instances, 7 were followed by a strong up year, much higher than the average annual return since 1990 of 7.91%. 2022 has been the worst year for stocks since 2008 and the first time many young investors have experienced a large drawdown. However, over time the markets tend to move higher and long-term investors should remember there is always light at the end of the tunnel.
