November 2022 Market Update
- jbrowning08
- Nov 3, 2022
- 4 min read
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November 2022 MARKET OUTLOOK
It was HOT! My head was swimming, and my mouth took in massive lungs full of air. I had two walking sticks and a lot of water on my back. My 50+ out-of-shape body had pushed through a whopping four miles of straight uphill rocky terrain. My ultra-marathon runner 20-something son waited patiently for me, not even breathing heavily, and encouragingly said, Dad, just another mile to go, and it is all downhill from here! (I begged to differ with him on this analysis because we had to go back.) He also suggested that it was hard for him; he was just “used to it.” I tried to point out that when he was little and we were on a trail like this, I would pick him up and carry him o my back. It seems only fair that he would do the same for me now! He did not think that was a good idea.
At the end of the trail, the waterfall was impressive and refreshing. It was worth the journey and blisters.
Investing often feels like this, and I understand that some of us who have been training for this a long time may look like we are not “breathing heavily,” but markets like these are complex for everyone. We have just “been through this before and have trained for it.
Where is that waterfall
What to do
Where is that waterfall?
As we got closer to the waterfall on our hike, it was encouraging to feel the air get a little cooler and hear the rushing water.
We have started to hear the talk from the Federal Open Market Committee (FOMC) governors that they may be thinking about a slowdown in rate increases. This revelation has been encouraging to the market, and we have started to see some company stock prices inch higher while others have faltered as we work through earnings season.
The slowdown should not be surprising, as the FOMC told us their target rate all along. A 75-basis point move in early November and a 50-basis point move in December. A further 50-basis point move higher in February would also be right on target.
Additionally, as the mid-term elections close, I expect we will see more gridlock in Washington, which is nearly always good for the market.
So we are all good then, right?
Not so fast! I doubt we are out of the proverbial woods just yet. Here are a few things I see as I look ahead.
Housing prices will likely remain under pressure, and while I doubt we will see anything as bad as 2007 and 2008, the slowdown in housing impacts a host of other industries, which will also slow down.
Inflation is still ongoing. Food and energy, in particular, will likely continue to increase, followed by wage inflation and more layoffs.
Earnings season thus far has not been horrible, but we have already seen warnings about future earnings.
Supply chain issues remain as China continues with COVID lockdowns and struggles with its real estate collapse.
The war in Ukraine continues into the cold winter months. The energy needed to heat Europe will be constrained, increasing energy prices further.
So, while we may be starting to hear the rush of the refreshing waterfall, we likely still have further to travel down this trail.
What to do?
At the risk of sounding like a broken record, do not time the market! If you feel you must do something, rebalance it to align with your long-term plan. Uncover the hidden gems this market has left behind in its wake. There are fantastic opportunities for investors with a longer time horizon and a strong stomach. Keep in mind that some market sectors tend to do better than others during recessionary periods.
For Instance:
What companies sell or produce things we all need, and which companies have strong balance sheets?
How about companies that legitimately help individuals and other companies save money through technology or some other means and also have strong balance sheets?
What companies help consumers feel they are getting something, yet it doesn’t cost much money and has strong balance sheets?
Counterintuitively, what companies produce high-end goods for the high-net-worth individuals who are less impacted by the effects of inflation and recessionary pressures?
Lastly, what companies still make money and have strong balance sheets but are in a sector beaten down by market sentiment?
These may be the worst of times and yet the best for those who position themselves to profit long-term.
Let’s talk soon!
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