February 2023 Market Update

January 2023 Market Update

Thin Ice?

The winters in Chicago get bitter cold. One of the things all of us parents worried about was that the kids would get excited a little too early and would go play on thin ice. Once you break through the ice in the middle of a lake, things can and often do go wrong quickly.

As adults with experience and knowledge, we are very cautious, but when you are a kid on your way home from school, the ice looks thick enough from the shore, and it can be a very tempting playground.

The great January in the market is very tempting to retail investors looking for a bit of relief from the beating they all took in their accounts last year. But it could be thin ice.

Last month I wrote that the change of the calendar to a new year did not mean that economic conditions had changed or that any forces at work in the market would suddenly reverse course. This still holds.

Market sentiment disagrees with me, which is why we do not advocate trying to time the market! I have been pleasantly surprised to see the stock market trading higher, even though earnings so far, have been less than stellar, layoffs are beginning en mass, and a recession seems imminent. This may be the most widely anticipated recession in history, so perhaps all the bad news has been priced in.

The market continues to trade with the dichotomy that bad economic news makes for positive market returns while good economic news makes for worse market performance. The reverse psychology is that since interest rates are driving the market, worse economic news will mean the Federal Open Market Committee (FOMC) will be forced to slow down and soon stop the rate increases. The bond market is pricing in a rate decrease towards the end of 2023, although the FOMC has not indicated this is likely.

The two forces that investors should never try and fight, the Fed and overall market sentiment, are fighting among themselves – so now what?.    

Go back to fundamental analysis. 

On the macroeconomic level:

• The FOMC still has further to go, and they have not defined how long it will be before they potentially cut rates.

• The FOMC’s balance sheet reduction is not getting much attention. There are fewer natural buyers of the treasury debt they are selling to decrease the balance sheet. The increased downward pressure on the dollar makes overseas investments look more attractive.

  • Adding to this issue were the comments from Saudi Arabia that they are willing to accept payment for oil in non-US Dollar denominations.

• Headline inflation is tapering off, but the pressure to the upside remains in energy, food, and wages. We are not entirely out of the woods yet.

• As layoffs continue, consumer prices and margins may continue to be squeezed, further depressing earnings.

Positioning yourself to profit:

Energy prices did not rise as much as expected during the fall and winter months as significantly warmer temperatures helped reduce the need to burn fuel for heat both in the U.S. and Europe. I believe this only delayed price increases as the systemic supply pressures remain firmly in place. We remain overweight in energy. However, we have moved into more midstream and downstream energy companies, given the runup in prices for many upstream energy names.

Closely related to energy demand, the demand for Uranium continues to gain steam (pun intended) as calls for renewed use of nuclear energy gain vast acceptance even in Europe and Japan, where nuclear was very recently a taboo subject. We also remain bullish on the food production, storage, and transportation market, particularly where they intertwine with innovations such as artificial intelligence.

We remain optimistic about the integration of pharma, biometrics, genomics, and artificial intelligence. At the same time, most of these companies continue to be suppressed by higher interest rates. January was a good month for this sector, but they may be on thin ice here.

We continue to find bargain basement prices in all industries but remain keenly aware that we may have to wait for gains to be realized due to market sentiment.

January brought significant outperformance in last year’s hardest-hit sectors. Those who endured maximum pain at the end of 2022 and understandably opted to change strategy to a more conservative approach may have done so at the wrong time. However, as I mentioned above, the market, in general, could be on some thin ice and ripe for a bit of a correction to the downside in the coming few months.

The most common mistake of the retail investor is to compare each company’s price movement each day, week, or month and conclude that because one outperformed another over the short term, a change should be made in the portfolio. Often the prize goes to the one with the best research and the steadiest hand despite all the noise going on around them.

If you have a longer time horizon and have phycological fortitude, many great companies can be purchased at excellent prices.

Suppose that type of volatility is not for you. In that case, other viable options exist that do not include stuffing your hard-earned money in your safe or the mattress where inflation silently eats away at your purchasing power.

Define your outcome and allow a skillful artisan to help you create it for you.

Please remember that this note is our opinion from a broad perspective based on over three decades of money management experience and is not personal investment advice.

For more information and a copy of the Amazon Best Selling Book Build A Life Not a Portfolio, reach out to us HERE or text the word LIFE to 321-421-5213

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We continue to have one goal; to help you build a life you love supported by a portfolio that fits your specific needs.

Talk soon,

John

Phone: (312) 372-5000

Email: info@advocacyinvesting.com

John Browning, MBA, and CSA®

* Securities and investment advisory services are offered through Guardian Rock Wealth™ Investment Management Inc. (GRWIM). GRWIM is a wholly-owned subsidiary of Guardian Rock™ LLC. Neither of these entities provides tax or legal advice.

Nothing in this communication should be construed as personal investment advice, and past performance is no guarantee of future results. Investing is only appropriate for some. There is a risk of loss associated with investing in the markets. No representation or implication is being made that using any methodology or system will generate profits or ensure freedom from losses. Please remember that investing carries risk. Guardian Rock Wealth™ LLC and its affiliates are fiduciary investment advisors. Please consult with another experienced, qualified investment advisor or us before making any investment decisions and/or trying to implement any of the strategies and tactics we may discuss in any of our publications.