November 2022 – By Kyle Rohrwasser
Another busy month in the global financial markets. Lower CPI results led to the 14th best single day performance on the NASDAQ, midterm elections are all but done, FTX (one of the largest cryptocurrency exchanges) has filed for bankruptcy, Leading Economic Indicators (LEI) are starting to turn sour, home sales have begun to fall, and the Chicago Bears manage to average 30 points a game in their last 3 games and lose all three.
But the market is up 3.5% so far this month and so, the world moves on. I could stuff the monthly articles full of current events and scary headlines, but the world always moves on. Knowing this and separating yourself from the noise might be one of the hardest skills of today’s modern world, but a skill worth learning and/or practicing for your mental health and investment mindset.
“Bad news is good news” it is an odd term that is used during the current Fed rate hike cycle. As poor economic data comes out, it implies that the actions by the Fed to slow the economy are finally taking hold. If economic data continued to be good, assumption is that the Fed would move rates even higher which will create an even greater head wind to equities and fixed income. So, the start towards a slowing and eventual stopping of rate hikes comes from poor economic news. Quite the game of telephone but the slowing of economic growth and inflation is much better for an economy over the long term then a possible short term inflationary wage growth spiral.
With the economy slowing when referencing LEI’s and the 2-year vs 10-year treasury yield still inverted by over 60 basis points there still is more pain to go on the economic side. As stated in previous articles, the market moves before recession hits and in most scenarios finishes positive during, as most of the pain has been priced in already on expectation of slowing growth. We will be focusing on LEI’s and earnings over the next few quarters to see how if any opportunities arise.
Ideal scenario would be a… “Soft Landing”. Defined in the Cambridge dictionary as “a period when economic growth slows down, but the economy does not enter recession”. Although the chances of not being in or headed towards a recession are slimming, the consensus is if we do go into recession, it will be short lived, mainly because employment is too strong (relative to previous recessions). The expectation is the political policy will influence these items. A main topic of conversation will most likely be around cost of living and home affordability in 2023.
Overall, we see some uncertainty hanging around in the short term, but we are still positive long term on the gain potential of equities. Especially after this year’s major indexes off between 15% – 30%. I tend not to quote Buffet, but I do love this quote and I believe that it rings true especially now. “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” The quote comes from humans being naturally reactive; tending to shorten their horizon during a down market and extending too far when markets rally.
We firmly believe that maintaining a well-diversified long-term approach is the best method towards long term, risk adjusted returns. Even more so now with the amount of market and economic uncertainty in the near future.
This material is for informational purposes only. It is not a recommendation or solicitation to buy or sell any securities. Vantage Financial is not a tax advisor; please consult your tax advisor prior to making any investment decisions. Vantage Financial is an Investment Advisory Firm registered with the Securities and Exchange Commission (“SEC”). SEC registration does not imply any particular level of skill or expertise.