December 2022 Market Update
If I told you the stock market just entered a new Bull Market, would you believe me? No? I wouldn’t either, but we’d both be wrong. As of Wednesday, November 30th, the DJIA has rebounded 20% off the lows to start what we technically consider a new Bull Market.
November continued the rally up for the first back-to-back monthly increase since July 2021. (We did say in October’s Market Commentary that October has a history of ending bear markets. While we’d love to go on CNBC with our Nostradamus predictions, we’ll remain pleasantly skeptical for now). While we all enjoy this new rally, we must put context to it and remember the DJIA is only 30 stocks. Yes, they’re the big 30 stocks (Apple, Chevron, American Express, Goldman Sachs, JNJ, Coke, 3M, Caterpillar, Walmart, Disney, etc.), but the S&P 500 and Nasdaq haven’t been able to celebrate just yet. Here are your YTD numbers:
So, what’s happening right now? We’ll say two things:
- All eyes are on inflation, and the inflation report for October surprised the markets by coming in substantially less than expected. Inflation appears to have peaked a couple of months ago, and while we could ultimately be proven wrong, that’s been our consensus for a while now.
- The news can often be pessimistic regarding just about everything in life, but it’s clearly been overbearing on the negative this year, yet 3rd quarter corporate earnings have mostly beat expectations. That’s not a little thing. Greedorfearwill always drive the news cycles as well as the average investor, but corporate earnings and profits are what drive the markets in the long run...end of story. So far this year, they’ve exceeded expectations, however low those may have been.
While stocks have been extremely volatile this year, we expect that to happen occasionally. What has been more abnormal to watch this year is the wild swing in the bond markets. November did find some footing coming out of October’s bond volatility, has settled some. Brokered CD rates spiked on the long term (5 yr) for a moment but walked back a significant amount, and in fact, aren’t even worth commenting on the long end of the scale as of right now:
So where are we today, and where do we see risks & opportunities?
- We are expecting a mild recession mid-2023, so we are remaining somewhat defensive in our portfolios with a tilt toward value.
- We are still overweight US equities, almost completely ignoring international markets; although we are starting to see some attractive pockets of opportunity in Asia and Emerging Markets, we’re not convinced just yet.
- Commodities have dropped dramatically, and we’re beginning to underweight energy going forward. (More about that in our year-end commentary).
- We like fixed income(bonds) more today than we have at any time in the past 10–15 years. For most of us, it’s not the stock market that we truly care about; it’s the fact we need a 6-8% return to achieve a comfortable retirement. And if bonds can deliver 5%, we’re that much closer to our goal than when they were only 1.25% 11 months ago. That means we can reduce the risk exposure we’re taking on the stock side.
Financial Planning 101: You invest for the goals you need to achieve, not to keep up with the markets.
And here is your useless Fact of the Month: In 1958 “Lil Miss Dynamite”, country music star Brenda Lee sang a song no one had heard before. It was called “Rocking Around the Christmas Tree”. The person that wrote the song, Johnny Marks, had also written these annoying songs: Holly Jolly Christmas & Rudolph the RedNose Reindeer. Brenda Lee was only 13 years old at the time she sang that song. It didn’t become the Christmas staple it is today until after the cinematic masterpiece Home Alone hit the theaters. (The scene where Kevin splashes aftershave on his face & screams). Today, Brenda Lee is worth$20 million. The moral of the story? If you don’t make millions with us, write a Christmas song!
Sean & John