Happy New Year, and welcome to 2023. I’m sure all of us are happy to see 2022 in the rearview mirror. Looking back, it was a challenging year not only for the markets but also for all of our wallets, as inflation hit highs we hadn’t seen since the 1980s. Undoubtedly, we’re all hoping for a more upward-trending financial outlook for the next 12 months.
Markets started their slide early in 2022, as tensions began to rise with the Russia-Ukraine conflict. After Russia’s invasion in late February, we saw the beginning of the supply chain crisis. By March, the Federal Reserve (Fed) began implementing a series of interest rate hikes in hopes of easing inflation, and prices on just about everything rose sharply, from housing to gasoline to grocery store staples.
Mid-year, as investors digested these developments, the markets plunged. Then they rebounded, then fell, then rose, then fell… Ooof, it was a nausea-inducing roller coaster ride through the end of the year, with nine of 11 U.S. equity benchmarks ending the year in the red (their worst year since 2008).
While we’re still waiting to see if a better-late-than-never Santa Claus rally ever materializes, it will be important in the coming weeks to see how the numbers look for employment data and the manufacturing and service sectors. Following the downbeat end to 2022, it sure would be a relief to see a softer landing as we start 2023.
As always, we’re here for you. If you have concerns about current economic conditions, questions about the financial outlook for 2023, or need to chat about changes in your situation, just give us a call. We look forward to connecting with you in the new year.
The market rally that was taking place in the first two months of the fourth quarter died out in December. For the month of December, the S&P 500 Index returned -5.76%, bringing its yearly losses to -18.11%. The selloff was led by growth-ier technology stocks, as the NASDAQ returned -9.01% for the fourth quarter. The value-oriented Dow Jones Industrial Average Index fared better, only showing losses of -4.09% for the fourth quarter. Ultimately, the fourth quarter brought investors back to the cheerless reality of a negative year for equity markets across the board.
In US Sector performance, all 11 sectors of the economy were negative in the fourth quarter. Even the most conservative of the sectors – Utilities - could not squeak out a positive gain, returning -0.53% for the fourth quarter. Consumer discretionary and technology sectors were the largest losers for the quarter, and investors began to worry that mounting consumer debt could be troublesome moving into 2023. While the energy sector was also down for the fourth quarter (-2.94%), it was the lone bright spot for sector allocation in 2022, returning +65.72% for the year.
The Federal Open Market Committee (FOMC) raised the Federal Funds Target Rate (fed funds) by 50 basis points (bps), a well-telegraphed downshift from the previous four consecutive 75 bps hikes, with the target band now at 4.25-4.50%. Markets largely anticipated the move, viewing it as the start of an eventual shift to even smaller future hikes and subsequent pauses. With the two most recent releases of inflation data being lower than expected, market participants are leaning in the direction of a more sanguine inflationary and rate environment. With yields still on the rise, it should come as no surprise that the Bloomberg US Aggregate Bond Index settled down -0.45% for the month and finished down -13.01% for the year.
2023 may be based on how well the consumer can hold up, as consumer spending accounts for 70% of US economic activity. A contrarian indicator in our favor is The University of Michigan’s Consumer Sentiment Index. The index has been below 60 for seven consecutive months, the longest run of extreme negative sentiment that we’ve seen, with data going back to 1952. The prior record was four straight months during the 1980 recession. A very negative reading typically could signal a turnaround in sentiment and this might signal a turnaround in equity markets. However, we have seen Credit Card balances in the US increase 15% over the past year (the biggest jump since the 2001 recession) and the savings rate fall to its lowest level since 2008-2009. Therefore, it will be important to watch how the consumer navigates the first few months of 2023.1
Wound Healing: Science Fiction Could Soon Be Science Fact
You’ve seen it a dozen times, the science fiction movie scene where the futuristic hero sustains an injury and a mysterious and quick-acting medical spray repairs the damage. Well, that science fiction could soon be science fact, thanks to a medical science breakthrough.
Researchers at the Univ. of California San Francisco have engineered molecules that act like a “cellular glue” for the direct bonding of tissues — a long-sought goal of regenerative medicine. Their work reveals a flexible molecular adhesion code that determines which cells will interact and in what way.
The hope is that the code can be harnessed to control how cells assemble into tissues and organs. Click here to learn more about this transformative research.
THOUGHT FOR THE MONTH
Dow Jones Industrial Average: The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.
Dow Jones U.S. Real Estate Total Return Index: The index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.
NASDAQ Composite: The NASDAQ Composite is a market-cap weighted index of all issues listed on the Nasdaq stock exchange. It is heavily weighted towards the technology sector.
S&P 500 Bond Index: The S&P 500® Bond Index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500.
S&P 500 Consumer Discretionary: The S&P 500® Consumer Discretionary comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector.
S&P 500 Consumer Staples: The S&P 500® Consumer Staples comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector.
S&P 500 Energy: The S&P 500® Energy comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector.
S&P 500 Financials: The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector.
S&P 500 Index: The S&P 500® index is a market-cap weighted index of the largest 500 companies headquartered in the United States. The index covers approximately 80% of available market capitalization.
S&P 500 Utilities: The S&P 500® Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector.
S&P U.S. Aggregate Bond Index: The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.
S&P U.S. Treasury Bond Index: The S&P U.S. Treasury Bond Index is a broad, comprehensive, market-value weighted index that seeks to measure the performance of the U.S. Treasury Bond market.
PLEASE NOTE: When you link to any of the websites displayed within this email, you are leaving this email and assume total responsibility and risk for your use of the website you are linking to. We make no representation as to the completeness or accuracy of any information provided at these websites.
A portion of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results.
Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect again loss. In general, the bond market is volatile; bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed-income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds or high-yield bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.
The statements provided herein are based solely on the opinions of the Advisor Group Research Team and are being provided for general information purposes only. Neither the information nor any opinion expressed constitutes an offer or a solicitation to buy or sell any securities or other financial instruments. Any opinions provided herein should not be relied upon for investment decisions and may differ from those of other departments or divisions of Advisor Group or its affiliates.
Certain information may be based on information received from sources the Advisor Group Research Team considers reliable; however, the accuracy and completeness of such information cannot be guaranteed. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial information. Any opinions, projections, forecasts and forward-looking statements presented herein reflect the judgment of the Advisor Group Research Team only as of the date of this document and are subject to change without notice. Advisor Group has no obligation to provide updates or changes to these opinions, projections, forecasts and forward-looking statements. Advisor Group is not soliciting or recommending any action based on any information in this document.
Securities and investment advisory services are offered through the firms: FSC Securities Corporation, Royal Alliance Associates, Inc., SagePoint Financial, Inc., Triad Advisors, LLC, and Woodbury Financial Services, Inc., broker-dealers, registered investment advisers, and members of FINRA and SIPC. Securities are offered through Securities America, Inc., a broker-dealer and member of FINRA and SIPC. Advisory services are offered through Arbor Point Advisors, LLC, Ladenburg Thalmann Asset Management, Inc., Securities America Advisors, Inc., and Triad Hybrid Solutions, LLC, registered investment advisers. Advisory programs offered by FSC Securities Corporation, Royal Alliance Associates, Inc., SagePoint Financial, Inc., and Woodbury Financial Services, Inc., are sponsored by VISION2020 Wealth Management Corp., an affiliated registered investment adviser. Advisor Group, Inc. is an affiliate of these firms.
Your Monthly Market Newsletter, January 2023
January 05, 2023