Your Monthly Market Newsletter, January 2023

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. 

Stocks

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. 

Sector Performance

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.

Bonds

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.

Economic Update

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

^{1 https://bilello.blog/2022/the-week-in-charts-11-21-22}

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

^{Index Definitions}

^{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.}

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^{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.}

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