January 3, 2022
Good morning,
Happy and Healthy New Year wishes to all, and welcome back.
Given the long break, let’s do a quick review of the S&P 500 Index (SPX) last year in bold strokes and then look ahead. A year ago tomorrow, the SPX set its all-time high at 4818. On October 13th it set last year’s low at 3491, down -27.5% from its peak in a little over 9 months. There were two double-digit rallies in last year’s first nine months, one in March (+12%), and one in Jul-Aug (+18%). Since lower lows followed both of those rallies, they are both defined as bear market rallies (typically sharp ascents followed by lower lows). Following the 10/13/2022 SPX low, last year’s third, and as yet undefined, rally began and lifted the index by +17% before peaking in early December. Despite a willingness to give history the benefit of the doubt and “hope” for a year-end rally, hope is not a very good strategy and a Santa Rally never materialized. December was not kind to the third rally of the year and the SPX gave back half of its Oct-Nov gains to end the year down -19% from its high on 1/4/22. And +10% above its 10/13/2022 low. (Bloomberg Data)
Markets look to be starting 2023 on a positive note this morning – early January normally sees increased liquidity. Stock, bond, and gold prices are all up. That kind of coordinated movement typically does not last long, and you would imagine one of those assets is directionally wrong over a longer than one- day time horizon. I’m guessing it is stocks, but guesses don’t play a role in our money management process.
We left off last year with the open question of whether the Oct-Nov rally was the bear market kind and would lower lows follow it. I’m leaning yes after watching December unfold but we will need more market deterioration before rendering that conclusion. There’s a lot of economic data this week; let’s see how the market interprets it.
Be well,
Mike