Reflecting on 2022 and Looking Ahead to 2023: Market Commentary from Cabana’s CEO – December 30, 2022

1 year ago

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This last commentary of 2022 comes with gratitude. I am grateful for my partners around the country, my clients and the amazing people inside Cabana – all of whom have fought through the historically difficult year we have just experienced. I won’t belabor the myriad issues that have made the past year unique for investors. Suffice to say we all have experienced it differently but with a common intent to emerge stronger, smarter and better prepared going forward.  When investing is easy (and it often is), we tend to forget the value and necessity of work. It is the plain and simple work during adversity that makes us better. Sometimes the work consists of facing fear and uncertainty. Sometimes the work is being there for a client (or a lot of clients) who really needs a guide and steady hand. Sometimes it is acknowledging that you don’t have all the answers and need to dig deeper to find a better path forward. I have personally done quite a bit of this work this year and I hope I am a more seasoned advisor, skilled asset manager and enlightened human for it. It is cliché to say that it is obstacles in life that lead to growth, but I believe it is true.  

As we move into 2023, we continue to grind toward an end to this bear market. Unfortunately, a formal recession appears imminent to me. This is due to shrinking corporate earnings in the face of our Central Bank’s relentless quest to reduce inflation by raising interest rates. As crazy as it sounds, the Federal Reserve is actually trying to stifle economic growth and increase unemployment. Unfortunately, they have the tools to do it and there is not much the rest of us can do about it, other than manage through the process. Eventually, I think things will get bad enough and sufficient people will lose their jobs and quit spending money (because they won’t have any). Inflation may then be tamed and the Fed will stop. At such time, a new bull market can begin. So how low do we go in the meantime? During a bear market that coincides with a recession, history says that the S&P 500 drops at least 24% and on occasion more than 40% from recent highs. We have already dropped 24% so we are within historical range. During the great recession of 2008-2009 the S&P 500 dropped more than 50%. In March 2020 the S&P 500 dropped more than 30%. Nobody knows for sure, but it would seem logical that we hit a bottom in stocks after a recession is formally acknowledged and the Fed pauses its rate hikes. This thinking would suggest a bottom sometime in the second quarter of 2023 and a recovery beginning thereafter. Inflation is the wild card. If inflation remains high for longer, then rates will continue to move up and a recovery will be pushed further out. Conversely, if it abates, we could see a recovery sooner. There is no sure answer here and it is my opinion that a rules-based process is our only free lunch to help us weather the uncertainty. Markets are forward looking, and the turn tends to happen when things look bleakest for the economy. As investors we want to be there and be ready. 


January 17, 2024

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The Nasdaq Composite Index is a market-weight capitalization index that covers more than 3,000 stocks listed on the Nasdaq Stock Market. What is the Nasdaq Composite, and What Companies are in It? | Nasdaq