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A look back, a look forward

By  Carter E. Anthony, CFA


After two COVID years, what could be worse? You don’t have to look far to see what the Biden administration, a democrat congress and the Fed have done to the economy and to the country.

Wave after wave after wave of greenback dollars have fallen from the democrat heavens to cure all ills.

It is typical democrat, “tax and spend” but more precisely this time “spend and tax” trying to figure how to pay for all of the votes bought by the spending.

The flow of dollars by the Fed and the Treasury has created classical inflation not seen in 40 years.

As a result, financial markets in 2022 took their worst beating since 2008 during the Great Recession.

The bell-cow stock market index, the Dow Jones Industrial Average fell 8.74% after recovering from a negative 18% earlier in the year.

The broader and riskier Standard and Poor’s 500 Index fell 18.1% and the tech-heavy NASDAQ Index fell a staggering 32.97%.

The Dow was held up by Chevron returning 52% and Merck returning 35%.

The S&P and the NASDAQ were each hurt by the decline in value of tech stocks such as Meta (Facebook), down 60%, Amazon down 40%+ and other tech companies on the same slide.

Among the 11 sectors, Energy, up 64.56%, led by Exxon’s plus 80.26%, was one of two positive sectors.  Utilities, the other positive, rose 1.57%.

Communication Services, including Verizon’s being down 24%, was the worst sector, down 37.66%. Healthcare, led by Merck’s positive 35% return, declined only 1.95%.

Earlier in the year, many, including me, thought the worst, a deep recession, was coming by mid-year.

We raised some cash in investment portfolios in an attempt to ward off a significant decline in market value.

As the year progressed, it appeared even the Biden administration could not destroy the country in such a short time and we began to re-invest some of the idle cash.

It proved a good move as the stock market rallied late in the year.

As we move into 2023, the doomsayers still seem to be on the front page.

Inflation, although it has softened a bit, is still out there and the R-word (recession) is as prevalent in early 2023 as it was in 2022.

The quarterback of the economy, Fed Chairman Powell, seems bent on raising rates until he breaks the back of inflation.

Much like the administration’s push for electric vehicles, Powell is not willing to let the market have its say.

The Fed, much like an insistent mother-in-law, always overstays its visit leading to more pain than gain.

After a really good ride in tech stocks, it doesn’t seem possible that the likes of Amazon, Google, Meta (Facebook), Netflix, Invidia, etc., can continue their run.

Growth stocks including tech stocks do best when interest rates are low. Interest rates have been too low for too long but they are no longer low.

As we saw in 2022 with rates rising, value stocks, typically with low valuations and good dividends, began to out-perform growth stocks and drive the market.

If you wish lower volatility and more income yet want to stay in the equity market, value stocks should be in your portfolio.

With the change during the year, I began to move money out of growth and into value creating somewhat of a balanced equity or core equity portfolio.  It paid for itself with returns better than the indices.

Most often, after negative annual returns, the market will right itself and provide positive returns the next year.

However, with the inmates running the asylum in D. C., I am staying invested but making no bets on returns in 2023.

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