Market Notebook

by | Jan 1, 2023

Discussion – 

Equity prices, as measured by ticker SPY, and bond prices, as measured by ticker BND closed lower on the week.

SPY price closed down roughly 20%, and BND price closed down roughly 13% in 2022. A rough year for both equity and bond investors.

SPY appears well established in a downward trend.

BND price remains below the 20-day exponential moving average and appears to be consolidating in a narrow range.

Market participants are likely happy to have closed the door on 2022. Long-only equity and bond investors are probably staring at losses on their statements as price movements in equity and bond prices were highly correlated during the year. Few asset classes provided shelter from the storm.

Economic indicators within the Market Notebook remain mixed. Real economic activity will likely slow over the next few months as the Federal Reserve continues to act to contain inflationary pressures.

In an excerpt from The Conference Board’s December 22nd press release, Ozyildirim said: “Despite the current resilience of the labor market, as revealed by the US CEI in November, and consumer confidence improving in December, the US LEI suggests the Federal Reserve’s monetary tightening cycle is curtailing aspects of economic activity, especially housing. As a result, we project a US recession is likely to start around the beginning of 2023 and last through mid-year.”

Please note the timing of equity and bond price movements rarely coincides with real economic activity. Market participants attempt to anticipate real economic activity, and therefore prices tend to move to reflect anticipated future conditions as opposed to existing conditions. If a recession occurs and then ends in mid-2023, equity prices are likely to rise well before mid-2023 in anticipation of the recession’s end. Keep this potential dynamic in mind when planning portfolio adjustments.

It may be prudent to avoid equity and bond purchases unless necessary while momentum remains negative.

Welcome to 2023. May the new year bring health, happiness, and the achievement of your goals. All the best!

Disclaimer: Nothing in this discussion should be considered investment advice. The content of this discussion is strictly my personal opinion and subject to change at a moment’s notice. Investment advice can only be provided to you by your investment professional and not by a general market discussion such as this one. If you wish to speak with an investment advisor, contact us. We can probably help.