Hello all - we hope you had a nice December and 2022. From an investing perspective, we’re ready to put this year behind us!
December was another lower month for stocks to close out an awful year. For the month, the Dow lost 4.2%, the S&P 500 fell 5.8%, and the Nasdaq, which has a higher concentration of tech stocks, was down 8.7%.
The year was the worst one since 2008, when the financial crisis first hit. The Dow returned -8.8%, the S&P 500 declined 18.1%, and the Nasdaq posted a 33.1% loss.
December was another lower month for stocks to close out an awful year. For the month, the Dow lost 4.2%, the S&P 500 fell 5.8%, and the Nasdaq, which has a higher concentration of tech stocks, was down 8.7%.
The year was the worst one since 2008, when the financial crisis first hit. The Dow returned -8.8%, the S&P 500 declined 18.1%, and the Nasdaq posted a 33.1% loss.
Here’s a few charts looking at the markets this year.
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The bond market fared very poorly this year, too, as bond prices fell at a record pace. Here’s a look at bond market prices over the past year, represented by the Vanguard Total Bond Market ETF.
The combined loss in stocks and bonds this year has been historic. Take a look at this chart plotting out the returns of stocks vs. bonds.
All investment portfolios have stock and bond allocations, and the amount varies by risk levels. Riskier portfolios have more stocks, less bonds, and less-risky portfolios have the opposite.
For the basic 60% stock / 40% bond portfolio, the loss this year was the worst ever.
For the basic 60% stock / 40% bond portfolio, the loss this year was the worst ever.
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Here’s a look at some of the other markets this year.
Volatility of the stock market is currently on the lower end of the range it has traded in this year.
Volatility of the stock market is currently on the lower end of the range it has traded in this year.
Oil is currently well below the levels it reached earlier this year, too.
Finally, the U.S. dollar was an important story this year as it reached record highs against other currencies. The dollar and the stock market moved opposite of each other – when the dollar was higher, stocks were lower. The dollar is now well off its highs of the year, too.
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THE FED
We believe the Fed had the most impact on the markets this year. They raised interest rates at the fastest pace ever, which increases the cost of borrowing money.
We believe the Fed had the most impact on the markets this year. They raised interest rates at the fastest pace ever, which increases the cost of borrowing money.
The Fed had lowered interest rates as a way to stimulate the economy, and this stimulus has continued since the financial crisis nearly 15 years ago. Its like using pain killers for 15 years to treat a broken arm – eventually serious problems will arise. This is the year the problems arose.
As for the Fed this month, they held another policy meeting where they continued pulling back on their stimulus by raising interest rates. The increase in rates was lower than the last several meetings, but he indicated they will continue raising rates for a long time. The market didn’t take the news well and fell sharply on the news.
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INFLATION
The Fed is very focused on inflation, so investors have been paying close attention to it, too.
When measured on an annual basis, inflation ticked lower last month.
The Fed is very focused on inflation, so investors have been paying close attention to it, too.
When measured on an annual basis, inflation ticked lower last month.
When looking at it month-by-month, however, inflation continues to rise.
Inflation at the business level (the PPI) again moved lower on an annualized basis, but it still rises month-to-month.
Here’s a look at the monthly measurement:
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OTHER ECONOMIC DATA
Economic data released this month was mostly lower, showing the economy is slowing.
The manufacturing portion of our economy contracted, but the service part showed an improvement.
Economic data released this month was mostly lower, showing the economy is slowing.
The manufacturing portion of our economy contracted, but the service part showed an improvement.
Retail sales moved lower from the previous month.
Consumer confidence ticked higher.
Confidence at small businesses also rose.
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Where does the market go from here?
It’s a tough guess right now. Stocks are slightly on the oversold, or cheap side, as we close out the year. Here’s a look at some of the indicators we follow:
It’s a tough guess right now. Stocks are slightly on the oversold, or cheap side, as we close out the year. Here’s a look at some of the indicators we follow:
An interesting chart is the put-call ratio. Without getting too far into what the put-call ratio is, basically, the higher the level, the more worried investors are.
As you can see in the chart below, investors have been extremely worried (the stock market is on the top, the put-call ratio on the bottom). When this indicator spiked to a high level in the past, the stock market rallied. Will this happen again this time?
As you can see in the chart below, investors have been extremely worried (the stock market is on the top, the put-call ratio on the bottom). When this indicator spiked to a high level in the past, the stock market rallied. Will this happen again this time?
It’s possible that buyers reemerge in the new year after putting a bad year behind us, but only time will tell. Now is a time to stay nimble.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
