Fourth Quarter 2022 Executive Summary

A year ago, we were expecting 2022 to be “less remarkable” than its predecessor, but the past year saw more than its fair share of drama as we continued to navigate history in the making -- another year that won’t soon be forgotten, though many investors may want to.  

Following the worst opening three quarters in twenty years, Q4 brought some relief to the markets, with the DOW and the S&P 500 finishing the quarter in solid positive territory.   Even with that, the indices were down for the year, -8.78% and -19.44% respectively.  The technology dominated Nasdaq, however, couldn’t break its quarterly losing streak and was down -1.03% for the quarter and -33.10% for the year.  And along the way it was yet another wild ride, with investors fluctuating between fear and glimmers of hope that the worst had passed.   

As we begin a new year, uncertainties abound.  We’ve seen the markets face headwinds from just about every direction, and reasonable arguments can be made for either a 2023 recovery or recession.   Is the worst behind us?  What continued (or new) geopolitical issues will impact the coming year?    And what about Covid?  Will we see a recession, and if so, for how long?  And the big one … how soon and how much will inflation and Fed policy impact the economy?   So far, the Fed has successfully choreographed the delicate dance of raising interest rates without pushing the economy into a recession; however, we see the probability of a recession increasing as the consequences of the Fed’s policies (which historically lag) come to fruition.   But one thing is certain, and that’s our unwavering confidence in staying the course.  

On October 16, 2008, the New York Times published an opinion article by Warren Buffet, the essence of which rings true today.  He states “I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month or a year from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up.  So if you wait for the robins, spring will be over.”  (https://www.nytimes.com/2008/10/17/opinion/17buffett.html)

The following March launched the longest bull market in history, in which the S&P 500 increased 330% in 10+ years.

We remain committed to focusing on your long-term goals and objectives, investing in quality securities and remaining patient.  Together we will ride out the storm. 

Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act.  There is no other route to success.  -- Pablo Picasso

Recent Economic Data: 

Gross Domestic Product (GDP).  The GDPNow model estimate for real GDP growth in Q4 2022 is 3.8% (seasonally adjusted annual rate; estimate released January 5, 2022), an increase from 3.2% in Q3.  

Unemployment.  The unemployment rate, which has been in a narrow range of between 3.5%  and 3.7% since March, was 3.5% in December.  Total non-farm payroll employment increased by 223,000 in December, with the number of unemployed persons at 5.7 million, down from 5.8 million in September. 

Consumer Confidence.  The Conference Board Consumer Confidence Index, an indication of consumer attitudes and buying intentions now stands at 108.3 (1985=100).  The index rebounded in the last month of the year, up sharply from 101.4 in November, as inflation expectations improved (primarily due to recent declines in gas prices.)  

Consumer Price Index (CPI).  The CPI for All Urban Consumers (CPI-U), a measure of inflation which shows “cost of living” fluctuations, increased 0.1% in November on a seasonally adjusted basis, and for 12 months ending August the CPI-U increased 7.1% before seasonal adjustments, down from 8.3% three months earlier.  While well above the Fed’s 2% target, efforts to slow inflation appear to be having an impact. 

Earnings.  For Q4 2022, the estimated earnings decline is for the S&P is -4.1%, a decrease from the Q3 growth rate of 2.4% and well below the Q4 estimate (on September 30, 2022) of 3.5%.   The last time the index reported a year-over-year decline was Q3 2020.

Housing.  Privately-owned housing starts in November were at a seasonally adjusted annual rate of 1,427,000, 16.4% below the November 2021 rate of 1,706,000. Builders’ confidence dropped two points in December to 31, its 12th consecutive monthly decline and the lowest reading since 2012 (with the exception of the onset of Covid in the spring of 2020).  High mortgage rates and construction costs dramatically outpacing inflation (up 30% YTD) have builders struggling to keep housing affordable for home buyers.  On the bright side, it’s the smallest drop in the index in six months indicating that it could be reaching the bottom. 

We are committed to serve you with the highest standard of care in keeping with our corporate mission of 

Building Relationships … Enhancing Lives.

 Executive Summary Sources:

https://www.marketwatch.com/story/stocks-end-lower-friday-cement-biggest-9-month-plunge-in-20-years-2022-09-30

https://www.wsj.com/articles/higher-interest-rates-can-take-a-long-time-to-bring-down-inflation-11666517405

https://www.cnbc.com/2019/03/15/the-stock-markets-gain-in-the-last-10-years-is-one-of-its-best-runs-since-the-1800s.html

https://www.pablopicasso.org/quotes.jsp

https://www.nahb.org/news-and-economics/press-releases/2022/12/reflecting-a-weakening-housing-market-builder-confidence-declined-every-month-in-2022

https://www.atlantafed.org/cqer/research/gdpnow

https://www.bea.gov/news/2022/gross-domestic-product-third-estimate-gdp-industry-and-corporate-profits-revised-third

https://www.bls.gov/news.release/pdf/empsit.pdf

https://www.conference-board.org/topics/consumer-confidence

https://www.bls.gov/news.release/cpi.nr0.htm#

https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_010623A.pdf

https://www.census.gov/construction/nrc/pdf/newresconst.pdf

https://www.morningstar.com/indexes/dji/!dji/performance

https://www.morningstar.com/indexes/xnas/@cco/performance

https://www.morningstar.com/indexes/spi/spx/performance

https://finance.yahoo.com/quote/%5EIXIC/history?p=%5EIXIC

https://finance.yahoo.com/quote/%5EDJI/history?p=%5EDJI

https://finance.yahoo.com/quote/%5EGSPC/history?p=%5EGSPC

The views expressed represent the opinion of Asset Management Financial Solutions, Inc. (“AMFS”) and are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and AMFS’s view as of the time of these statements.  Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties.