Looking Forward Into 2023
December 12, 2022
Weekly Market Outlook
By Keith Schneider and Donn Goodman
Gaugers, it was another choppy week in the stock and bond markets with negative returns for all of the major indices.
Small caps, which can be most negatively affected by rising interest rates, had the worst performance of the major equity indexes, with a decline of 5% for the week.
Most of the other indices were down from 2.7% (Dow) to -3.7% (QQQ) for the week. Bonds were also down on the week fueled by Thursday’s PPI (Producer Price Index) report that came in hotter than expected and led interest rates to rise in expectation of a more hawkish Fed.
Looking back at 2022
It certainly has been a difficult and choppy year in BOTH the stock and bond markets. As we have shown repeatedly, this has been the worst year for a balanced portfolio approach with most balanced funds (60% equites and 40% fixed income) down in the mid-teens. I noticed yesterday that Vanguard’s $43 billion dollar Balanced Mutual Fund is down over 19% year-to-date. I feel bad for all the 401k investors that have just closed their eyes and kept their investments in this and other Balanced funds.
If you were a passive investor during 2022, the Dow was the best place to be invested and is down in single digits (as opposed to the S&P 500, the NASDAQ and Small Caps which are all down mid-teens to almost 30% for QQQ). WOW.
The Dow (mostly large cap value plays) has vastly outperformed the other indices because of its high concentration of industrial stocks, health care, energy, and less weighting on technology. See charts below:
This has been the largest outperformance of the Dow over the S&P since its modern version origination in 1957.
There have been 4 sectors that have been the bright spots during 2022. XLE – Energy, XLV-Health Care, XLP-Consumer Staples, and XLU-Utilities. As expected, these are commodity related sectors (Energy) or Defensive areas of investments (Staples, Health Care & Utilities). See chart below (adjusted for dividends):
XLE-Energy (light blue): +51%
XLU-Utilities (purple): +1.97%
XLP-Staples (orange): +0.50%
XLV-Health Care (yellow): +0.47%
S&P 500 (dark blue): -16.75%
What Bias Do You Have?
Below is a chart showing two different historical perspectives overlaid on the S&P 500. Which one do you relate to more? The negative or positive scenario? Let us know.
Will there be a long-awaited Fed pivot and why you shouldn’t fight the Fed.
And….what 2023 may have in store for the economy and your investments?