7th Worst Year in History

January 3, 2023

December was once again a reminder that historical tendencies are just a guide and not an absolute.  December has traditionally been one of the best months of the year for the market and has seen a positive close more often than any other month.  After a strong October and a decent November, we hoped December might help mitigate some of the damage done to the market earlier this year, but it was not to be.  The news backdrop was rather benign, but the month began with 5 consecutive days of losses setting the stage for a tough month.  Tax loss selling and persistent recession talk made it difficult to find buyers and the S&P 500 declined every week in December.  At the end of the month the S&P 500 had dropped another 5.9% and ended the year down 19.5%, the 7^th worst year in market history.  Oil prices declined to the lowest level since January but ended the month just fractionally lower and were up 16.7% for the year.  Gold struggled with the stronger dollar this year but ended December with a gain of 2.9% leaving the precious metal fractionally lower for the year.  A balanced account with 60% equities and 40% long term bonds lost about 24% in 2022.

The month began on a Thursday with news that manufacturing PMI had dipped into contraction territory for the first time since the pandemic and on Friday we learned a stronger than expected 263,000 new jobs were created in November.  2 days into the month the S&P 500 was down a mere .2%.  The first full week of the month turned in the worst performance for the market in 3 months as the S&P 500 lost ground 4 of 5 days.  The economic news during the week was good which led to concerns about rising interest rates and at month end the S&P 500 had shed 3.4%.  The second full week featured a report that the CPI for November showed the biggest 1-month percentage drop since the Fed began raising rates and Fed Chief Powell raised the discount rate by the expected 50 basis points.  The market was performing well for the week until Powell’s comments during his press conference were surprisingly more hawkish than expected and that turned a nice gain in the S&P 500 to a 3% loss, and we ended the week with the S&P 500 down another 2.1%.  Christmas week is generally quiet, and this year was no exception.  The market had a nice rally on Wednesday after surprisingly strong earnings from FedEx and Nike, but the S&P 500 still ended the week down another.2%. The tendency of the market to rally the last 5 business days of the year is called the Santa Claus rally, but after a disappointing year we weren’t surprised to see no year-end rally this year as the week closed .1% lower marking a 4^th consecutive week of losses.

January sees the biggest inflow of money into mutual funds as everyone who has an active 401k, regardless of income, is contributing in January.  As a result, the month is historically one of the best of the year for the stock market and only trails December in the percentage of years it has closed higher.  Many high-quality stocks are down dramatically and the market PE ratio has fallen below 20 for the first time in over 5 years.  There is no Federal Reserve meeting in January so the feature news will be the CPI report for December that will be released January 12^th.  In 2022 it was the Federal Reserve that dictated much of the market action, but with rate increases winding down 2023 is going to be about the economy and corporate earnings.   A plethora of earnings warnings and/or a hot CPI number could be problematic.  We continue to be cautious and will use market strength to add to our defensive holdings.

If you know someone who would be interested in learning more about Greenberg Financial Group, please contact us at 520-544-4909, or visit our NEW website at www.greenbergfinancial.com. As always, the key to successful investing is to have a portfolio that is consistent with your investment objectives and risk tolerance. We invite you to listen to our weekly Money Matters radio show which airs every Sunday Morning from 8:00 AM to 10:00 AM on KNST AM 790.  You can also listen to us on iHeart radio, follow us on Twitter @gbergfinancial or on Facebook under Greenberg Financial Group.  You can now listen to previous shows by going to www.iheart.com or using the iHeart app.