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Summary


The S&P 500 kicked off 2023 with an upbeat January, following a year that saw it register its worst annual performance in 14 years. The index rose by a little over 6% on the month as the initial round of fourth-quarter earnings reports exceeded expectations. Consumer discretionary, communications, and technology stocks were the highest performing sectors on the month - a good sign as these are among the sectors expected to outperform in the early stages of a bull market recovery.


Key Events & Stats


The two key drivers of the market in 2022 - inflation and interest rates - continue to remain front and center in terms of driving market action.


  • In December, the consumer price index (CPI) increased by 6.5% year over year - it's sixth consecutive monthly decrease from a peak reading of over 9% last summer, but still much higher than the Fed's target rate of 2%.


  • As expected, the Federal Reserve continued with its slower pace of interest rate hikes, raising its short-term borrowing rate by 25 basis points on February 1st. This follows the 50 basis point rate hike in December, which came after four consecutive 75-basis point rate hikes.


  • U.S. GDP for the fourth quarter showed the economy grew at 2.9%, slightly better than expected. While the economy has overall remained resilient, we are beginning to see evidence of deteriorating conditions; particularly in the housing market and job growth. And while the overall labor market is solid, there is concern around the growing number of big tech companies issuing layoffs.

  • Earnings season thus far has been better than feared, with S&P 500 companies reporting (on average) a 5% year-over-year decline in earnings-per-share for the fourth quarter of 2022.

  • Between the effects of inflation, rising unemployment and a housing market correction; many economists are forecasting anywhere from a mild recession to flattening GDP growth in 2023.


Charts of Interest


2022 was, of course, a mid-term election year. Historically those years are not good years for the stock market, but the year following tends to be strong. The chart below highlights the performance of the S&P 500 in the 12 month periods following mid-term elections since 1950.


Looking at market breadth - over 70% of S&P 500 stocks are above their 200-day moving average. This is in stark contrast from the rally last summer that peaked in mid-August, when the percentage peaked at about 48%.





The S&P 500 itself has also broken out above its 200-day moving average, and the so-called "death cross" (the 50-day moving average (blue) crossing below the 200-day moving average (red)) is nearing full reversal.



Analysis


Despite the optimism in the charts and the strong move higher this past month, I believe there is still reason to exercise some caution. It has less to do with whether the rally is "for real" or not - I would lean towards thinking that it is - but more to do with the fact that it has not been sustained for a long enough period of time as of yet.


SPY (S&P 500) Momentum


History suggests that if momentum were to break down, it would do so inside of the next several weeks. Time will tell, but for the moment we remain at a 50% allocation to equities.


Objectives: For our core portfolios, our objective is growth with a reasonable level of risk. Our portfolios are actively managed, and we adjust our exposure to the stock market based on technical and economic factors. When appropriate, we may reduce or eliminate our stock market positions in order to preserve capital.


As always, I appreciate the opportunity to serve as your advisor and partner with you in reaching your financial goals. Wishing you and yours well!


Sincerely,





This column expresses our views and opinions as of the date of publishing. Those views can change at a moment's notice when the market changes.


Disclosure: Choice Wealth Management, LLC is a registered investment advisory firm. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.




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