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Steve's Newsletter

Steve's January 2023 Newsletter

The Bad and the Better!

During 2022 the NASDAQ was down 33.1%, the Dow was down 8.8% and the S&P 500 was down 19.4%. After a 2022 full of stock market downward swings and rising interest rates there is some hope for a “slightly” calmer 2023. There is a light at the end of the 2023 financial tunnel and it is not a train coming towards you!

Inflation could start to slow soon and sometime by mid-2023 the Federal Reserve could halt or start reducing the severity and number of interest rate increases. Historically, stocks have tended to produced gains after the Federal Reserve has signaled an end to a rising rate cycle. However; at the same time, the economy is also likely to enter a mild recession, with the labor market contracting and unemployment rising. So, we could have two contrarian economic scenarios!

Fourth quarter 2022 corporate earnings season that will start soon, will not be good! I believe higher interest rates have already reduced earnings and that many companies will reduce profit projections going forward. My hope is that much of the effects of lower profits have already been baked into the present market indexes.

With continued higher interest rates, I believe we will continue to have the stability of bonds and higher yielding money markets providing ballast to portfolios.

I see downside risk from a 2023 recession with lower corporate profits and revenues, but with upside potential from better stock market sentiment as the Federal Reserve halts interest rate increases. With these choppy cross-currents in mind, I’m neutral risk as we balance the downside risks with the potential for an improving investment outlook as 2023 progresses. In other words, I see a sideways market until mid-Summer.

A Seismic Shift

It has been almost a year since I first said that “the next decade of investing returns will not be like the last decade”. We are facing the biggest strategic long-term shift in the investing landscape in years! The days of: 20% yearly returns, low inflation, low interest rates, nearly free money, excess speculation in unreasonable assets and the Federal Reserve riding to the rescue every time the stock market has a problem…. are behind us!

I am constantly looking ahead to maneuver thru these changes; Sometimes with real economic numbers, and sometimes with years of intuition and experience! The objective is to match your individual risk tolerance to the marketplace we are presented with, by allocating your portfolio across various changing market sectors in order to help achieve the optimum and safest return possible.

A Happy and Healthy New Year 2023!

Steve Newman