What’s In Store for 2023?
The $1.7 Trillion bipartisan spending bill pushed through by Congress at the end of the year was a kick to the gut for investors who were hoping we’d see inflation abate more quickly. A leading research company, Hedgeye, describes it best saying, “We remain in a new, higher inflation volatility regime brought on by deglobalization, confounding energy policies, war, and a wholesale disregard for fiscal prudence at a time of record government indebtedness.”1
Managing a Bear Market
From the June 15 lows, the stock market experienced a relief rally lasting one full month before falling back to re-test its lows of the year by the quarter’s end. These are the moves typically experienced when a market is under duress – often referred to as “bear market rallies” and “bear market selloffs”. Out of this volatility, a noticeable behavioral pattern develops among investors. When markets are fiercely advancing upward, investors catch a case of “FOMO” – the fear of missing out – and they want to be “all in”. Conversely, when markets are fiercely declining in value, investors get panicked and want to run for the exits. These traits only become amplified when these market gyrations occur on a day-to-day basis.
Endure Volatility for Future Rewards!
There are a lot of shoes dropping now on the U.S. economy that we have been forecasting in previous newsletters. Inflation is running hot. Economic growth, as measured by GDP, is slowing. Interest rates are climbing. Supply chain bottlenecks still exist. Gas prices remain elevated. Housing demand is cooling. Residential rental rates are climbing. Consumer credit is at an all-time high. Consumer confidence is weakening. You get the point. The list is long.
Quite a Ride!
As expected, it was a very choppy first quarter for the stock market. As we turned the calendar over to 2022, the market gave us that stomach-churning feeling you get when you realize you are at the apex of the rollercoaster climb and now see what’s in front of you. From January 1, it was a swift ride down to a low point in early March before climbing about halfway back up by the end of March.
“2021” Was a Strange Year!
Happy New Year! It’s only fitting that our quarterly newsletter would be affected by supply chain issues. If you didn’t notice the difference, we can only credit the capabilities of today’s laser printer technology. Unfortunately, ordering official letterhead in late November did not allow for a lengthy enough window to receive a fresh stock by January 1.
What is the U.S. Debt Ceiling?
What is the U.S. debt ceiling? It’s simply a dollar cap limit that the US Government places on its own authority to raise money by issuing government bonds to continue to meet its obligations like social security payments, tax refunds, interest payments on existing debt, government employee salaries, military salaries, just to name a few. Since 1917, Congress has raised the debt limit 78 times (See Citation 1).
Has inflation fully kicked-in yet?
In last quarter’s commentary, we addressed inflation as an increasing headwind on the stock market. Just how much inflation is in the offing and whether it is transitory (i.e. – temporary and manageable) has been the hot public debate in financial circles during the second quarter. Anecdotally, I’ve heard from many of you about the rising cost of 2 x 4’s, tires, used cars, gasoline, and even Burger King chicken sandwiches. I paid $4.09 for an order of large fries at McDonald’s in Moorhead this week! Perhaps the only real takeaway there for me is that by making better diet choices, I could help stave off inflation.
What happens when interest rates rise?
Can stocks and interest rates go up at the same time? Yes, they can, and they often do. Right now, we are in a period of recovery from economic shutdowns across the globe. As companies are forced to raise prices in 2021 and meet a return in consumer demand, we are watching inflation like a hawk. Specifically, we pay very close attention to the 10-year treasury note yield as our sentiment barometer.
Recovery
Hello friends, Social distancing affords a person a lot of time to reflect on life, doesn’t it? This time spent at home with family has been a great blessing. Life’s pace has slowed down, and that’s the solace I didn’t know I needed. I hope you’ve found your own moments of solace amidst this abnormal reality, as well.
Individual Stocks – Are they for you?
Contrary to what logic might suggest, the most difficult time to be an investor is when the financial markets are in the late stages of a multi-year upward trend. As we witness market levels hit record highs, the appetite for adding new money to investments can start to wane for fear that the most opportune time to buy has already passed us by. It’s an innate thought process. Since we were little, we’ve all been taught that too much of a good thing is not always a good thing, and it’s a legitimate lesson that I’m sure we’ve all learned multiple times in our lives.
