Market Recap and the Week Ahead | Consensus

A major plus out there is most people are negative. The market very rarely accommodates to consensus. – Leon Cooperman 1/5/23

Last week's market recap:

The S&P 500 closed the week up 1.47%. Year-to-date the index is up 1.47%. 1 year performance is -15.68%
NASDAQ closed the week up 1.01% and is up 1.01 YTD. 1 year performance is -29.32%
U.S. Aggregate Bond index was up 1.85% for the week. 1 year performance is -10.27%
10-Year Treasury Rate increased, ending the week at 3.55% down from 3.88% the prior week.
- Fed Funds Target rate is 4.25%-4.50%
The 1-Year Treasury is yielding 4.71%
A 6 Month Treasury is yielding 4.83%
- If your savings account is still under 1%, you may want to find a new savings account.

The week ahead:

CPI (Inflation Data)
Earnings Season: Big Banks: JP Morgan, Bank of America, Chase, Wells Fargo, BlackRock, Citi, etc.

Quick Comments:

The S&P 500 is positive for the current calendar year! We haven’t been able to say that since 2021.

Why did the market rally roughly 2.5% on Friday?

The market was up big on Friday after Friday’s jobs report. Average hourly earnings grew, but not as much as expected. The Fed wants to cool the labor market. Friday’s jobs report was less “inflationary” than expected, therefore the markets popped.

Will the Fed Pivot?

The next CPI number comes out on Thursday, January 12th. Most expect Inflation to continue to fall. Many are forecasting Thursday’s Year-over-Year CPI to be 6.5%, down from 7.1% last month. The market clearly wants to see a Fed pivot to recognize how much inflation has come down, but the Fed doesn’t want to risk another spike in inflation. We are more likely to see the Fed pause rate hikes in a few months vs a pivot. A pivot would probably be a response to something in the markets breaking. A Hawkish Fed certainly remains a risk to the markets.

Tax Loss Harvesting Season is Over

As we approached the end of 2022, tax-loss harvesting became the most logical strategy once it became clear that the potential for capital gains had run out of time. Now that we’ve entered 2023, tax-loss harvesting season is over and with the S&P 500 at almost a 20% discount from one year ago, many indicators imply that bargain hunters are likely to show up again in January.

Low Expectations are Easier to Beat

Inflation is clearly still important, but the main focus should start to shift to corporate earnings. Investors have already largely accounted for the possibility of a recession by discounting asset prices. Economic growth estimates and corporate earnings projections have been lowered. The bar is low for companies to exceed expectations.

Is a soft landing possible?

Wasn’t 2022 already a hard landing?!

2023 starts off with Fixed Income yielding roughly 5%. This should provide a solid foundation for diversified portfolios going forward. Equities can certainly go lower from here. Consensus seems to be that equities will have a volatile first half of the year followed by a stronger second half of 2023. “The market very rarely accommodates to consensus.” Bonds are better positioned to once again provide a solid foundation for diversified portfolios.

Source: J.P. Morgan

2023 Financial Planning Notes:

Later age for RMDs
Bigger contribution limits on retirement accounts
Higher income limit for Roth IRA contributions
Increased Standard Deductions
Higher Marginal Tax Bracket Thresholds
529 rollovers to Roth IRAs (requirements need to be met)
Higher threshold for 0% long-term capital gains

As always, let us know if you have any questions.

Best,

CRA Investment Committee

Matt Reynolds CPA, CFP®

Tom Reynolds, CPA

Robert T. Martin, CFA, CFP®

Gordon Shearer Jr., CFP®

Jeff Hilliard, CFP®, CRPC®

Joe McCaffrey, CFP®

* https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/?gclid=CjwKCAiAk--dBhABEiwAchIwka8-IzqNO-wl0bofRr7RQkLckF3Fwy2RuM1fDmAgyMJLR6uQnzIPmBoCZ9sQAvD_BwE&gclsrc=aw.ds

Important Disclosure Information

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by CRA Financial, LLC [“CRA]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from CRA. Please remember to contact CRA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. CRA is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of CRA’s current written Disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.crafinancial.com. Please Note: If you are a CRA client, please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your CRA account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your CRA accounts; and, (3) a description of each comparative benchmark/index is available upon request.

Please Note: Limitations: Neither rankings and/or recognitions by unaffiliated rating services, publications, media, or other organizations, nor the achievement of any professional designation, certification, degree, or license, or any amount of prior experience or success, should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if CRA is engaged, or continues to be engaged, to provide investment advisory services. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Rankings are generally limited to participating advisers (to the extent applicable). Unless expressly indicated to the contrary, CRA did not pay a fee to be included on any such ranking. No ranking or recognition should be construed as a current or past endorsement of CRA by any of its clients. ANY QUESTIONS: CRA’s Chief Compliance Officer remains available to address any questions regarding rankings and/or recognitions, including the criteria used for any reflected ranking.