Clients & Friends
Since early October, the stock market has given us some relief from its 2022 bottom. However, if you were an investor within one side of the market you fared better than the others; meaning the Dow Jones Industrial Average ended higher than the Nasdaq & S&P500. It’s likely that your actual investment portfolio includes a collection of stocks within all US indexes mentioned so it’s likely that you experienced a mix of performance from all, resulting in a small bull market rally (more like a calf) since the end of Q3 2022.
As I have mentioned in previous updates, all eyes are on the Fed and their war against inflation. Interest rate hikes are their weapon of choice, but the casualties that will be left behind are still hard to predict. Is it the job market? Is it the real estate market? Is it company earnings? Or is it a full-blown recession? Experts are still debating all of these, but the Fed feels a soft landing (no recession) is still possible. To make their case, the job market is still hot but it’s likely to cool (this is what the Fed wants), the real estate market is cooling but demand (and supply shortages) should keep prices steady. This leaves us with company profits, which could be the driving force behind a market rally (or not) in 2023.
Where are we now? Inflation is trending lower, but prices are still increasing so it’s likely that additional (smaller) rate hikes are coming; the markets have already priced all this in. At some point this quarter the Fed will pause their rate hikes and wait for the data to come in; the next 3-6 months will tell us more on the trajectory of the economy.
What do we do now? We stay committed to our original investment strategy and find opportunities within the new (and changing) investment landscape. The market has (mostly) priced in the likelihood of a recession, so we feel that the bulk of the volatility is behind us. However, an escalation in Russian-Ukraine war and/or other new geopolitical developments could change this. On the other hand, any de-escalation in the Russian-Ukraine conflict could cause investors to come back into the market, and even shift more towards European markets.
As I mentioned in the first paragraph, some market indices performed better than others this past quarter, and even the past year. My point here is that all investments are not treated equal and investment selection is very important, especially in environments like this.
As always, if you have any questions about your investments, please don’t hesitate to contact us.
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These are the opinions of RDG Wealth Management and not necessarily those of Cambridge Investment Research, are for informational purposes only, and should not be construed or acted upon as individualized investmt advice.
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