As often stated, much about investing trends can be related to calendar seasons each year. By November 1, an uptrend of indeterminate length usually begins. Since this year’s market highs came on January 4, such a change in trend could not be more welcome!
Today, I will focus upon where things stand, which trends are in place, and whether a bullish trend may have legs, using that colloquialism. As I write on Tuesday morning, the S&P 500 registers at 3,890, down 18 plus percent from the end of 2021. The Nasdaq 100, heavy with technology, still lies down by 29.7 percent at 11,468, while the more value-oriented Dow Jones 30 Industrials has risen more recently to a level of minus 10 percent year to date, 32,661.
While I still maintain my general optimism for life and investing, the primary question is whether there has been enough bloodletting during the past ten months to sustain a new bullish trend into 2023. By strong historical patterns, November through January are the three best months for stock market results. Furthermore, the third year of the presidential term (2023) is most likely to have the best stock market results of the cycle. That is on the plus side.
But when prices rise to heights that become too good to be true, such as in early 2000, or there are particularly large and rotten areas of finance, such as lousy mortgages in 2008, the resetting process can take extra months or years to clear out inflated demand for some or most of the company stocks. In the 20 plus year old cycle you may not remember, Mr. Market traveled downward for most of 2000-02 after the dot.com bulls raced upward to enter the Y2K millennium.
The froth was definitely gone by the second week of October, 2002, and buying stocks regained normalcy. Even the start of the Iraqi War in early 2003 could not stop the new bull market trend.
Even though market ups and downs will continue to trade places, there are always financial instruments that make sense and earn money. This year, the mostly-hated oil and gas type of Energy sector stocks have risen by 51 percent thus far. Recently, the dollar has blunted the popularity of commodities in general–particularly gold and silver, but our favorite economists now suggest that 2023 inflation will remain at levels higher than 7 percent. This is obviously bad for us as consumers, but bodes well for investments in physical resources of all kinds including corn, wheat and soybeans.
These same economists have criticized the Federal Reserve Board since 2010 for its ridiculous Zero Interest Rate Policy. They predicted the negative effects of that program early on and now we can clearly see the great difficulty of getting out of it. The Fed promised that they were so intelligent and learned that their computer programs would guide them into a new promised land. I still do not believe in the Ph.D Economist class.
But finally, reason is returning to interest rates. We can now lend money to the US government at very short terms (days or a few months) and at least receive a rate of 3-4 percent per year. This is much better than almost zero! As the price of money (interest) returns to more normal levels, I predict that investing will also return to more normal conditions. Even so, some sectors and industries such as the big Techs will probably continue to return to earth.
One point is sure: prices of almost all investments are more reasonable now than they were a year ago. If you like to buy low or relatively low, it will be safe to re-enter the best areas of the economy and make a profit. If you need help in reallocating, ask your financial advisor for it or obtain one.