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.
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.
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®
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