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January 2023 Monthly Outlook

January 06, 2023
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Wow, what a year!  2022 was a rough year for the markets.  The S&P 500 was down 19.4%, the worst yearly decline since 2008.  The tech-heavy Nasdaq was down 33%, the worst decline since the dot-com bubble way back in 2001. Bonds fared no better, with the U.S. Aggregate bond index declining 13% during 2022, their worst year since 1999.

While all these declines are painful, I don’t feel we don’t face the same significant issues we faced back in the Great Financial Crisis (2008-2009), or the dot-com bubble.

So what are we watching as we begin 2023?

There are several positives:

  • Jobs – the employment market remains strong. Unemployment remains low at 3.7%.  There are reports of more companies doing layoffs, but most people are able to find new positions quickly as there are still almost 1.5 jobs for every unemployed person.
  • Inflation – inflation is still too high but it has been declining for 5 consecutive months.  We believe that downward trend continues.
  • Gas prices – like inflation, gas prices have been declining over the last few months.  This trend is subject to factors like the war in Ukraine and winter weather, but barring any impact from these 2 factors, we believe gas prices remain stable where they are now (around $3/gal. here in NJ).
  • Federal Reserve  - the Fed appears ready to slow the level of their interest rate hikes , and then hold rates steady to see how higher interest rates affect the economy and inflation.
  • Stocks – the decline in stock prices in 2022 means we enter 2023 with many very good companies trading at a discount to their long-term value.

There are also several major risks:

  • Washington – the debacle unfolding in the House of Representatives over electing a Speaker portends the potential dysfunction in Washington.  The biggest risk here is the need to raise the Federal Debt Limit later this year.  Just a handful of intransigent members of Congress could potentially shut down the government and cause a default on US Treasuries.
  • China – as China reopens its economy and eases Covid restrictions, there is risk that Covid again spreads across the globe and the increased demand for goods from Chinese families adds pressure to inflation.
  • Ukraine – as Ukraine continues to stand tall and actually push back, the risk that Putin escalates in a way that expands the conflict beyond Ukraine is real.  While this is a low probability risk, it has a very high potential cost.

 

Our outlook is for continued volatility early in 2023, with the market and economy stabilizing during the 2nd half of the year.  Stocks will continue to rally into overhead resistance (3,900 – 4,000 on the S&P 500) but could potentially decline if those rallies can’t push through resistance.  Any declines should be limited to the 3,600 - 3,800 range.

Only 1 chart this month – it shows why I am cautiously optimistic about stocks in 2023.   As we were ending 2021 and entering 2022, stocks were trying to get through resistance near all-time highs (upper left).  As we ended 2022 and enter 2023, stocks appear to have found a floor (lower right).  Assuming that support holds on any declines in early 2023, the probability of a move higher later in 2023 is reasonably positive.

 

We continue to be cautiously positioned in portfolios until we see how things evolve.  We will adjust accordingly.

We hope you and your loved ones had a great holiday season and wish you all a healthy and happy New Year

 

January Calendar of Events   (comments and additions for future months are always welcome)

  • January is National Blood Donation Month.  Let’s all give a pint to help another.

 

January   5th                    My granddaughter Isys turns 17.  How did that happen?

January 10th                    My wife Elle’s birthday.   

January 15th                    13th anniversary of my independent practice – thank you to all my great clients.

January 16th                    Martin Luther King Day.  Let’s pray for more racial tolerance and understanding.

 

 

Sources: CNBC.com, Bespoke Investment Group

 

 

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

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