Market Snapshot
briefing.com
| Dow | 32924.66 | -301.48 | (-0.91%) | | Nasdaq | 10307.45 | -110.48 | (-1.06%) | | SP 500 | 3809.58 | -40.12 | (-1.04%) | | 10-yr Note | -27/32 | 3.88 |
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| | NYSE | Adv 1347 | Dec 1657 | Vol 756 mln | | Nasdaq | Adv 2218 | Dec 2384 | Vol 3.9 bln |
Industry Watch
| Strong: Energy |
| | Weak: Communication Services, Information Technology, Materials, Consumer Discretionary |
Moving the Market
-- Lagging mega cap stocks
-- Thinner trading volume
-- Continued tax loss selling
-- Rising Treasury yields
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Closing Summary
30-Dec-22 16:30 ET
Dow -73.55 at 33152.59, Nasdaq -11.61 at 10406.32, S&P -9.78 at 3839.92
[BRIEFING.COM] The stock market had another disappointing session to close out a disappointing year. The main indices remained pinned in negative territory today amid thinner holiday trading conditions, but to be fair, pared their losses in a substantive way thanks to a rally effort in the final hour.
The initial move lower was driven by stocks seeing a reversal of yesterday's gains with acute weakness in the mega cap space, many of which aren't so "mega" any more given the massive loss in market capitalization they have suffered this year.
The Vanguard Mega Cap Growth ETF (MGK) fell 0.2% today, but had been down as much as 1.6%. For the year it declined 34.0%.
Selling efforts picked up again around 1:00 p.m. ET without a news catalyst. That down leg saw the S&P 500 hit, and bounce off, the 3,800 level. With lighter volume, the market can be vulnerable to abrupt shifts in action. Those shifts can happen upward just as easily as they happen downward, and that is exactly what happened in the last hour of the session.
Some of the same mega cap names that drove the downside moves today ended up registering a gain. Apple (AAPL 129.93, +0.32, +0.3%), Tesla (TSLA 123.18, +1.36, +1.1%), and Meta Platforms (META 120.34, +0.08, +0.1%) were among the winning standouts for the group. Notwithstanding today's positive finish for these names, they still lost 26.8%, 65.0%, and 64.2%, respectively, this year.
Ten of the 11 S&P 500 sectors closed in the red with the real estate (-1.0%) and utilities (-1.0%) sectors showing the steepest losses. Fittingly, the S&P 500 energy sector (+0.8%) was alone in positive territory, bolstered by rising oil prices. WTI crude oil futures rose 2.0% to $80.05/bbl. The energy sector was the only S&P 500 sector to end 2022 higher (+59.0%).
Treasuries were also weaker today, keeping with how most of 2022 has gone for that market. The 2-yr note began the year at 0.73%, but settled at 4.42%, up five basis points. The 10-yr note began the year at 1.51% and closed today's session at 3.88%, up five basis points.
- Dow Jones Industrial Average: -8.8% YTD
- S&P Midcap 400: -14.5% YTD
- S&P 500: -19.4% YTD
- Russell 2000: -21.6% YTD
- Nasdaq Composite: -33.1% YTD
Today's economic data was limited to the December Chicago PMI, which checked in at 44.9 (Briefing.com consensus 40.0) versus 37.2 in November. The report was better than expected, although a number below 50.0 still connotes a contraction in general business conditions for the manufacturing sector in the Chicago Fed region.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 9:45 a.m. ET: IHS Markit Manufacturing PMI final for December reading (prior 46.2)
- 10:00 a.m. ET: Construction Spending for November (prior -0.3%)
Market trying to climb ahead of close
30-Dec-22 15:30 ET
Dow -192.63 at 33033.51, Nasdaq -75.52 at 10342.41, S&P -27.42 at 3822.28
[BRIEFING.COM] The main indices have been trying to climb higher ahead of the closing bell.
Energy complex futures settled in mixed fashion. WTI crude oil futures rose 2.0% to $80.05/bbl while natural gas futures fell 1.5% to $4.10/mmbtu.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 9:45 a.m. ET: IHS Markit Manufacturing PMI final for December reading (prior 46.2)
- 10:00 a.m. ET: Construction Spending for November (prior -0.3%)
S&P 500 remains above 3800
30-Dec-22 15:00 ET
Dow -301.48 at 32924.66, Nasdaq -110.48 at 10307.45, S&P -40.12 at 3809.58
[BRIEFING.COM] The S&P 500 has been able to maintain a position above 3,800 despite the afternoon leg lower.
The S&P 500 energy sector (+0.3%) remains in positive territory as WTI crude oil futures breached $80.00/bbl, but the other ten sectors all sport losses of at least 1.0%. The health care sector (-1.1%) shows the slimmest loss among the underperformers. It's also one of the best performing sectors of the year with a 4.2% loss versus a 20.1% loss in the S&P 500.
The CBOE Volatility Index is up 2.7% or 0.58 to 22.02.
S&P 500 in second place on last session of 2022
30-Dec-22 14:25 ET
Dow -342.94 at 32883.20, Nasdaq -134.07 at 10283.86, S&P -46.36 at 3803.34
[BRIEFING.COM] The S&P 500 (-1.20%) sits in second place with an hour and a half to go on Friday, on pace for a -20.2% loss this year.
S&P 500 constituents Bio-Techne (TECH 81.24, -3.23, -3.82%), Etsy (ETSY 118.11, -4.57, -3.73%), and T. Rowe Price (TROW 107.85, -3.48, -3.13%) are among today's top decliners despite a dearth of corporate news.
Meanwhile, video game software firm Take-Two (TTWO 102.96, +1.62, +1.60%) is outperforming.
Gold little changed in 2022; up nicely in 2H, firmly off November lows
30-Dec-22 14:00 ET
Dow -312.42 at 32913.72, Nasdaq -116.55 at 10301.38, S&P -40.96 at 3808.74
[BRIEFING.COM] With about two hours to go on the final trading session of 2022 the tech-heavy Nasdaq Composite (-1.11%) holds the worst losses among the major averages.
Gold futures settled little changed at $1,826.20/oz, down just -0.1% on the year, but up about +1.0% in the second half of the year and about +12% higher off its November 2022 lows.
Meanwhile, the U.S. Dollar Index is down about -0.4% to $103.42.
Page One
Last Updated: 30-Dec-22 09:00 ET | Archive
A lot of making up to do in 2023
We have arrived. It is the final trading day of 2022 and the equity futures market is making it appear as if the cash market will adhere to its prevailing mindset in 2022, which is to sell into strength.
There was a nice rebound trade yesterday, albeit on very light volume, but there is no follow through this morning.
Currently, the S&P 500 futures are down 25 points and are trading 0.7% below fair value, the Nasdaq 100 futures are down 113 points and are trading 1.1% below fair value, and the Dow Jones Industrial Average futures are down 148 points and are trading 0.4% below fair value.
There isn't a specific news catalyst to account for the weakness. There is, however, a specific trade that is weighing on things.
The mega-cap stocks, which were influential leaders yesterday, are influential laggards this morning. Tesla (TSLA) is down 1.8%, NVIDIA (NVDA) is down 1.7%, Meta Platforms (META) is down 1.3%, Alphabet (GOOG) is down 1.3%, Amazon.com (AMZN) is down 1.2%, Apple (AAPL) is down 1.0%, and Microsoft (MSFT) is down 1.0%.
We can throw Visa (V) into the mix, too. It is down 0.5%. It also has a bigger market cap now than Tesla, NVIDIA, and Meta Platforms, as do JPMorgan Chase (JPM) and Exxon Mobil (XOM) to name a few others, which goes to show how much things have changed in the mega-cap universe in 2022 and how we might have to re-think the labeling attached to some stocks. To wit: are they large-cap stocks or mega-cap stocks?
We digress.
The key point is that it will be a weak open, driven perhaps by some last ditch, tax loss selling for 2022 filing purposes.
Investors aren't short on any candidates in that respect. Entering today, the Nasdaq Composite is down 33.0% for the year, the Russell 2000 is down 21.3%, the S&P 500 is down 19.2%, the S&P 400 is down 14.1%, and the Dow Jones Industrial Average is down 8.6%.
The real weakness has been in the growth stocks. The Russell 3000 Growth Index is down 29.5% versus a 9.8% decline for the Russell 3000 Value Index.
In any case, equities have a lot of making up to do in 2023, but forgiveness won't be granted easily knowing that the Fed still seems intent on raising rates and earnings estimates are likely to be subject to further downward revision.
Now, we hope you will forgive us for ending this year on that negative note and accept our gratitude for your continued readership throughout 2022 and into the great beyond of 2023.
-- Patrick J. O'Hare, Briefing.com
Five Below trending higher in recent months, investors betting on a strong holiday (FIVE)
- Five Below (FIVE) has caught our attention because it has been in a nice and steady uptrend since late July. The most recent catalyst was a surprisingly strong Q3 (Oct) report in late November. The report included impressive guidance for the all-important Q4 (Jan) holiday season. Same store comps of -2.7% in OctQ were well ahead of prior guidance of -9% to -7% and a nice bounce back after missing on comps in JulQ.
- We also think investors are getting excited about how FIVE may perform during the holiday season. FIVE's current guidance for JanQ comps is -1% to +1%, but after the big beat in OctQ maybe investors are looking for upside here. FIVE typically reports Q4 results in March.
- FIVE said recently that it had a strong Black Friday weekend. Also, FIVE is much better stocked with merchandise this year after dealing with out-of-stocks on some items last holiday season. FIVE also has improved the quality of its holiday offering this year. The goal is to have something for everyone at a value price, which is good with inflation remaining high.
- We just wanted to flag Five Below for subscribers given its recent trading action. In fairness, FIVE can be pretty hit-or-miss when it comes to earnings, but investors seem to be banking on a solid holiday period for FIVE.
Etsy is particularly weak today as it looks to maintain recent momentum into 2023 (ETSY)
Etsy (ETSY -3%) is showing particular weakness on the final trading day of 2022 as shares head toward their 50-day moving average of $117.03. The e-commerce platform focused on handmade items endured a challenging year as pandemic-related tailwinds dwindled and inflationary pressures took hold. However, since ETSY posted solid and steady performance in Q3 in early November, the stock has climbed over 35%, underscoring healthy momentum as 2023 approaches.
- ETSY's major advantage when stacked against competitors like Amazon Handmade (AMZN) is its massive number of unique visitors, which stood over 200 mln earlier this month. Although sellers tend to sell across multiple sites, including their own, ETSY remains a staple for these sellers as over 80% of the company's sales are derived organically. This underscores the benefits sellers receive by listing their items on ETSY, which we do not expect to tail off anytime soon.
- Overall Q3 results were solid, but there were a few issues, a broad slowdown in consumer spending being one of them. ETSY commented earlier this month that despite its gross merchandise sales (GMS) dipping by 3.3% yr/yr in Q3, it still grew over 150% from 2019 levels. This vastly exceeds rival eBay's (EBAY) gross merchandise volume (GMV) numbers, which saw an 18.4% decline versus 2019 levels in Q3.
- Buyers are also flocking to ETSY more often than before the pandemic. Most of the company's buyers purchased an item roughly once a year, with 40% buying two or more things annually before the pandemic. Fast-forward to the present day, repeat buyers are up to half of all ETSY shoppers, with average annual purchases of up to five.
These positive developments are certainly encouraging heading into a year where interest rates will continue to climb, and inflation could remain at elevated levels. Still, it is worth employing a healthy dose of caution when viewing ETSY as a possible turnaround play. Valuations will carry significant weight in 2023, and ETSY still trades at a relative premium of ~32x forward earnings. Its reach outside the U.S. may also pose some challenges, especially in Europe, where macroeconomic conditions are relatively worse.
Investment Ideas Recap for 2022
In recent years, Briefing.com has been presenting Investment Ideas in late December or early January as stocks to consider for the new year. We view these reports as starting points and recommend investors supplement with their own research as well. We also recommend a 20-25% stop loss limit. That is a big enough cushion to let stocks trade around a bit, but not too big to lose the whole investment. We think it's appropriate because these are buy and hold type ideas but 15% makes sense if you are more risk averse.
We have several analysts who present ideas, but this comment will be limited to those written by Robert Reid. My comments are always tagged with FUNDX, so that is an easy way to find them or set email alerts.
- With today being the last day of the year, we wanted to quickly recap our picks for 2022. In a word, they were not great, or maybe that is two words. This was a tough year for the stock market after a nice move higher in 2021. The S&P 500 was down about 20% this year and the Nasdaq was down around 33%. Unfortunately, the S&P 500 and the Nasdaq fell sharply in late January, soon after we made our picks and had another big drop from early April to late May.
- As a result, we were stopped out of four of our five picks (BBWI, CLF, F, LEVI). But that also shows the importance of having stop loss limits.
- There was one notable bright spot and that was Commercial Metals (CMC), which did not get stopped out and it is up +35% since our $36.00 profile price on January 10, even as the overall market sold off. It has been up as much as +41%, but has pulled back slightly in recent weeks. CMC is a steel producer that almost exclusively focuses on steel rebar, which is used in construction and infrastructure projects like roads and bridges. Granted, you do not get a lot of end market diversification with CMC, but if you are bullish on the construction market, as we have been, CMC is a good way to get high exposure to it. Also, the infrastructure bill should be a nice catalyst for CMC in the coming years.
- The other semi-bright spot was Cleveland-Cliffs (CLF). It actually had the biggest move of any of our picks, +63% at one point. However, CLF is a steel producer with high exposure to automotive and auto production did not recover as quickly as we expected it would. However, we continue to like it for when auto production does recover.
Bottom line, 2022 was a rough year for the financial markets and that included our picks. We are cautious about 2023 over concerns about recession and rising rates, however, we plan to roll out some 2023 Investment Ideas over the next couple of weeks.
Cigna is well-positioned to keep its healthy momentum going into FY23 (CI)
In typical fashion, Cigna (CI) reiterated its full-year earnings guidance ahead of its investor meeting on January 10. The healthcare and insurance firm continues to expect EPS of at least $23.10 for FY22. CI tends to update investors on its full-year projections before an upcoming conference, so the news is not driving a powerful reaction one way or the other. Still, with a slower trading day ahead, we wanted to dive deeper into CI, its positioning for FY23, and whether its 40% run on the year can carry over into the new year.
During its Q3 earnings call, CI was confident that the solid results seen during the quarter, including a double-digit earnings beat, top-line growth, and a better-than-expected 80.8% medical care ratio for Cigna Healthcare, would provide kindling to keep the momentum going into FY23. In connection with these results, CI outlined three pillars surrounding its Evernorth insurance and Cigna Healthcare segments that will create the backbone of its growth framework.
- The first component involved CI's foundational businesses, including its Pharmacy Benefit Services, U.S. Commercial, and International Health Businesses. These businesses boast established core relationships with corporate clients, health plans, and government entities, supporting steady growth and strategic and financial flexibility. As a result, CI expects positive results from each of these divisions in FY23.
- CI anticipates high client retention and new business wins in Pharmacy Benefit Services. The company's recent multi-year agreement for Express Scripts, it won over contract rival CVS Health (CVS) to be the provider for Centene (CNC), has also paved the way for a solid start to the 2024 selling season.
- In U.S. Commercial, CI commented that solid sales and net growth in its National Accounts division will carry into 2023.
- Meanwhile, in International, CI is optimistic that it will see another year of customer, sales, and earnings growth.
- The second pillar surrounds CI's Accelerated businesses, including Accredo Specialty Pharmacy, Evernorth Care Services, and U.S. government operations. The company has identified secular tailwinds helping these businesses in 2023, such as its expanded relationship to be the exclusive specialty pharmacy provider for the U.S. Department of Defense.
- Thirdly, CI will lean on its scope, leveraging its sizeable footprint capabilities to accelerate innovation driven by vast client data and information.
Overall, FY23 is shaping up to be another year of top and bottom-line growth. Headwinds will be present, including additional costs related to CI's relationships with the Department of Defense and Prime Therapeutics, as well as onboarding its new partner in CNC. However, CI anticipates that tailwinds will largely offset these challenges.
Beyond Meat is cooking on McDonald's (MCD) new Double McPlant launching in the U.K. & Ireland (BYND)
Beyond Meat (BYND +12%) is cooking today after one of its key partners, McDonald's (MCD), announced it would roll out the new Double McPlant in all its U.K. and Ireland-based locations beginning on January 4. Part of why shares of BYND are rebounding strongly on the announcement after hitting 52-week lows yesterday is their high short interest of 39%, which can add fuel to up-and-down swings as shorts cover or add to their positions.
- MCD has played a critical role in BYND's foodservice success, particularly outside the U.S. For example, the McPlant has already become a permanent menu item in the U.K., Ireland, Austria, and the Netherlands, underscoring healthy demand for the product.
- Although adoption in the U.S. has been slower, franchises like Taco Bell (YUM) and Panda Express have started offering BYND options at select locations.
- Expansion throughout the foodservice industry is pivotal to BYND's success at the grocery store as consumers may choose plant-based meats to cook at home after trying an already-prepared dish.
- Heightened focus on further penetration in the foodservice industry was one of BYND's core pillars to pivot to a cash flow-positive operation. Part of this centered on a narrower set of partners. With MCD expanding its BYND offerings, we would expect other partners to follow, especially overseas, where plant-based meat adoption has been quicker.
Nevertheless, headwinds still linger. Inflation is likely BYND's biggest opponent over the near term. The company's offerings tend to command higher price points than animal-based proteins. With consumers currently trading down from premium meat options, such as some cuts of beef, BYND's grocery store options will likely not see significant demand until inflationary pressures ease more considerably.
However, in the interim, BYND is fixated on achieving positive cash flow and hastening its path to profitability. With a narrowed focus on its foodservice partners as part of this strategy, MCD's announcement today underpins early success. It may also indicate further expansion of current BYND offerings at several other franchise partners.
The Big Picture
Last Updated: 30-Dec-22 16:39 ET | Archive
2022 Year in Review
Good riddance 2022! We don't want to hang out with you anymore. You were just too much of a downer -- a real party pooper.
You brought a lot of baggage with you and it got unpacked in a troubling way. You tossed stocks around like clothes in a teenager's dirty room, leaving them on the floor in a heap and with scant attention to the mess you made... and what a mess you made!
The Nasdaq Composite was down 33.1%, the Russell 2000 was down 21.6%, the S&P 500 was down 19.4%, the S&P 400 was down 14.5%, and the Dow Jones Industrial Average was down 8.8%.
That's only the 10,000 foot view. Looking beneath the surface, a lot more damage was done. Nearly one-third of S&P 500 components saw a decline of at least 25%; and still many other stocks suffered losses of 40%, 50%, or 60%+.
The mess wasn't just reserved for stocks, which saw the S&P 500 hit 4,816 on January 4 and scrape 3,800 on the last trading day of the year. It extended to bonds, too. Some would argue that they were an even bigger mess considering 2022 was the worst year ever for bonds!
Steamrolled by Rising Rates
So, what happened?
To put it bluntly, stocks and bonds got steamrolled by rising interest rates. The 2-yr note yield, which started the year at 0.73%, ended the year at 4.42%. The 10-yr note yield, which started the year at 1.51%, ended the year at 3.88%.
The crux of the interest rate matter for most, however, was the target range for the fed funds rate. It started the year at 0.00-0.25% and it ended the year at 4.25-4.50%, with a strong hint from the Federal Reserve that it will move higher yet in 2023.
In brief, the Federal Reserve killed the bull market in 2022, racing to catch up to an inflation rate that it had let run unchecked far too long.
When the first rate hike (a standard 25 basis points) occurred in March, the Consumer Price Index (CPI) was up 8.6% year-over-year and core CPI, which excludes food and energy, was up 6.4%. The PCE Price Index was up 6.4% year-over-year and the core-PCE Price Index, which excludes food and energy and is the Fed's preferred inflation gauge, was up 5.4%.
Exiting 2022, the annual rate of CPI and core-CPI inflation is 7.1% and 6.0%, respectively. For the PCE Price Index and core-PCE Price Index, it is 5.5% and 4.7%, respectively. The Fed's inflation target is 2.0%.
In Catch-Up Mode
The Fed was slow to raise rates because it thought inflation would be "transitory." It wasn't. The Fed also held off on a rate hike in January because of the uncertainty created by Russia's troop buildup on Ukraine's border.
That troop buildup turned into an actual invasion in February, the direct effects of which have been devastating for Ukraine. Meanwhile, the indirect effects on energy supplies for Europe and food supplies for the world have created their fair share of damage beyond Ukraine's borders.
Russia's provocative act invited the harshest of economic sanctions from Western nations and elevated geopolitical tension to such a degree that President Putin has threatened the use of nuclear weapons.
Russia's act of unprovoked aggression was among the biggest messes of 2022 and it is still a mess as we close out the year.
The latter point notwithstanding, life went on around that mess. The Federal Reserve is no longer reluctant to raise rates in the face of it. In fact, the FOMC returned in May with a 50 basis point hike before revving things up with 75 basis point rate hikes at its meetings in June, July, September, and November. The 2022 FOMC completed its work in December with another 50 basis point rate hike.
The scope and pace of those moves, which were also accompanied by the introduction of quantitative tightening, reflected in our estimation the work of a Fed that knows it waited too long to raise rates to fight inflation and is in catch-up mode.
That was a major problem for the stock and bond markets, as well as the housing market, which saw mortgage rates climb from 3.27% at the start of the year to north of 7.00% in October. Existing home sales declined in November for the tenth consecutive month.
Overall, the U.S. economy was fairly resilient in 2022, bouncing back from negative GDP prints in Q1 and Q2, underpinned by a tight labor market. Q3 GDP was up 3.2% at an annual rate and the Atlanta Fed's GDPNow model estimates 3.7% real GDP growth for Q4.
The unemployment rate of 3.5% in July matched a 50-year low. It has since risen to 3.7%, which is still below the Fed's longer-run full employment estimate of 4.0%. As we exit 2022, then, the U.S. economy is growing above potential, the unemployment rate confers an environment of full employment, and the inflation rate remains far above the Fed's 2.0% target.
Oh, and the Treasury yield curve is inverted, which is often regarded as a harbinger of recession.
That inversion has created a messy dynamic for stocks, because it has raised legitimate concerns about the Fed making a policy mistake and 2023 earnings estimates being too high.
Following Guidelines
2022 has been a year of multiple compression for stocks. Things began with the S&P 500 trading at 21.5x forward 12-month earnings and it is exiting the year trading at 16.8x forward twelve-month earnings (which are likely to be marked down further). The 10-year historical average is 17.1x, according to FactSet.
This compression has been stoked by rising interest rates, the specter of a weakening economy hurting earnings prospects, and the killing of animal spirits that ran freely in 2021 when interest rates were near rock-bottom levels, providing little competition for stocks.
By and large, the market has followed the guideline we provided in early February for investing in a rising interest rate environment.
That guideline included favoring the energy and basic materials sectors as an inflation hedge, favoring counter-cyclical sectors like health care, consumer staples, and utilities, favoring the financial sector, which tends to do well when rates start to rise, investing in value stocks, and embracing blue-chip companies.
These areas all outperformed the market this year. That doesn't mean they were all higher. In fact, the energy sector was the only S&P 500 sector to finish higher in 2022, but one's losses would have been less severe this year following that guideline.
An important component of the guideline, too, was avoiding growth stocks with premium valuations and speculative story stocks, which were the hardest-hit stocks in 2022. The seemingly invincible mega-cap stocks were big targets for sellers as well and a huge drag on the broader market. The Vanguard Mega-Cap Growth ETF (MGK) plunged 34.0%.
For some benchmarking purposes, note that the Russell 3000 Growth Index was down 29.6% this year while the Russell 3000 Value Index declined 10.0%.
Relatedly, cryptocurrencies were big losers as well, undercut by rising interest rates, the killing of animal spirits, and of course a lack of trust following the epic collapse of FTX and the scandalous and allegedly illegal behavior of Sam Bankman-Fried. There is a lot more to unfold with that mess in 2023.
Playing Politics
As 2022 drew to a close, China started rapidly to unfold the mess it made in 2022 with its zero-COVID policy. Remarkably, it did so after some messy-looking public protests by Chinese citizens fed up with the draconian testing and lockdown measures.
The initial trade-off has been an explosion of COVID cases in China and overrun medical facilities. This experience could potentially disrupt supply chains in early 2023, but net-net, the distancing from a zero-COVID policy should be a positive for China's economy and the global economy as the year progresses, assuming it doesn't result in contributing to persistently high inflation rates that leave the Fed and other central banks in a tightening mode longer than expected.
Separately, 2022 saw a thickening in the political tension between the U.S. and China over Taiwan, which looms as one of the larger geopolitical risks for the market in 2023.
U.S. politics, meanwhile, produced the contentious $739 billion Inflation Reduction Act, which is a climate and health care bill that passed along party lines. We also got through the midterm elections in November with Democrats winning majority control of the Senate and Republicans winning majority control of the House.
They are narrow majorities in both chambers and the divide will make it difficult to pass any additional landmark legislation over the next two years. It also sets up the possibility of more debt ceiling drama in 2023.
So Long 2022
There was an ample amount of drama in 2022. The Federal Reserve was often at the center of it all.
The Fed invited the drama, though, by waiting too long to raise interest rates and end its purchases of Treasury and agency mortgage-backed securities. Now, it is assuming the leading role again of being a credible inflation fighter, meaning it is not the market's friend as we exit 2022.
The Fed promises to be a main character in 2023, too. Its words and actions will be key to the market's performance along with the trend in earnings estimates.
There is talk today that we have hit "peak inflation" and that we are getting close to "peak Fed policy." Maybe so, but the messy story of 2022 was rooted in rampant inflation and a ramp in the Fed's tightening efforts.
That was a boon for the dollar but a deleterious combination for stocks, which had their worst year since 2008, and for bonds, which had their worst year ever.
Yeah, so long 2022. Don't let the door hit you on the way out.
-- Patrick J. O'Hare, Briefing.com
Market 2022 Price Return | Dow Jones Industrial Average | 8.8% | | S&P Midcap 400 | 14.5% | | S&P 500 | 19.4% | | Russell 2000 | 21.6% | | Nasdaq Composite | 33.1% | Source: FactSet
Sector 2022 Price Return | Energy | 59.0% | | Utilities | 1.4% | | Consumer Staples | 3.2% | | Health Care | 3.6% | | Industrials | 7.1% | | Financials | 12.4% | | Materials | 14.1% | | Real Estate | 28.4% | | Information Technology | 28.9% | | Consumer Discretionary | 37.6% | | Communication Services | 40.4% | Source: FactSet
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