Everyone wants to be fully invested in the market when it goes up and everyone wants to be in cash when the market goes down! Oh, if it were only so simple!
As subscribers to GaneWisdom/Market Edge have read these past months, 2022 was overall, a depressing year for investors – especially if you had no one watching over your money and especially your retirement account. As quarterly statements are being received this week, there might be a feeling of “I’m glad I kept my money invested” to those in the market throughout. As we pointed out last week, the S&P 500 was up @ 5.5 % for the 4th quarter.
The smelling salts should be on hand however when the year-end statements show up.
As we wrote last week
The Dow Jones, the oft-quoted index of 30 companies, fell 8.8 %. The S&P 500, a much better gauge of the market due to it’s being comprised of 500 of the largest publicly traded companies in the US, was down 19.4 %. The S&P Mid-Cap 400 index fell 14.4 %. The Russell 2000 index which tracks the performance of the smallest publicly traded companies was down 21.6 % and the NASDAQ Composite, the tech-based index, was down 33.1 %
What to do going forward?
Before we address that question lets look at what the latest numbers and events have told us and what they are telling us for the upcoming weeks.
What we’re digesting
Friday (1/6/23) saw the market make an impressive positive move. The Dow climbed 700 points to close at 33,630 (+2.13 %). The S&P 500 rose 87 points to close at 3,895 (+2.28 %) and by anybody’s standards these are impressive numbers. If we offered emotional advice, we would be inclined to find our party hats and noise makers left over from New Years. The truth is, however, that we are embroiled yet again in what seems to be another Bear Market rally. We’ll wait to see if the above averages break out above their resistance levels but as we closely followed the numbers coming out of Wall Street on Friday some very interesting movements were signaling a degree of caution before we felt comfortable celebrating. In fact, some of the indicators confirmed that it is just as we suspected – a great short-term upswing may be in the works. But please keep in mind what we continually espouse – It’s not what you make, but what you keep that counts………..
Despite what some analysts want to hear, we continue to listen to what the Federal Reserve is actually saying: inflation needs to come down to an annual level of 2% and we will continue to raise interest rates until we achieve that objective!
What we witnessed on Friday’s large rally was due to investors focusing on the possibility that good job news – that less jobs were created - would induce the Fed’s to ease continued rate hikes somewhat. But again, as we’ve said, we continue to listen to what the Federal Reserve is saying and not what we want or wish them to say. In fact, if you were to read the minutes of the Fed meeting in December (which was made public this past Wednesday) none of the top 19 Federal Reserve officials believe it appropriate to lower interest rates this year (2023)!
Although inflation has eased a bit, while the Fed continues to adjust rates upward to achieve their 2% goal, the likelihood of a recession becomes more apparent. Even the ‘Maestro’ (as he was once referred to) Alan Greenspan, the former Fed Chairman, observed that an economic recession is the “most likely outcome” as the Federal Reserve continues to increase interest rates. A recent Gallup pole found that fully 79 % of Americans believe that 2023 will see economic difficulties, 65 % believe that the cost of goods and services will dramatically increase and 81 % believe that higher tax rates are a given this year!
Some of those not forecasting a recession this year simply believe it will take more time and are forecasting a 2024 recession. Kristalina Georgieva, the Chairwoman of the International Monetary Fund (IMF) sees a third of the global economy experiencing a recession sometime in 2024. In fact, Gita Gopinath, a deputy managing director of the IMF is encouraging the Federal Reserve to continue their rate hikes! To suspect that the Fed will lower rates anytime soon runs counter to any available information as we’ve pointed out and frankly, we are puzzled as to what crystal ball some market gurus are gazing at.
In conclusion, we are of the opinion that we are still in a Bear Market, HOWEVER if we see some short-term positive movements with a majority of the indicators we follow, we will issue a midweek update so please continue to follow your subscription closely. It would be great to see the market bottom out sooner than later in order for our subscribers to take advantage of a solid and sustainable rally. We still look for the Panic Bottom where the S&P 500 nears 3,300 +/- before we see this occurring.
If we see any positive signs to invest short term – based on hard facts not emotion – we’ll send out alerts. We will continue to monitor the numbers and indicators so again, please visit us regularly.
Our position is to remain (or transfer into) Cash (Money Markets).
Mid-Week Alert for 1/11/23
We are issuing a BUY signal for those whose portfolios include Small Cap Funds. These are risk sensitive investments therefore use your discretion and judgement before purchasing and/or transferring.