Week On Wall Street: It’s Finally Over

“Anything worth doing is worth overdoing.” – Mick Jagger

There’s simply not a lot to like with the results, but that’s always the case closer to market bottoms than tops. That doesn’t mean we have to rally in 2023, but just because there’s nothing positive to say doesn’t mean we have to keep going lower either. I am trying my best to keep an Open Mind.

Monthly Recap

December is in the books and it’s the 8th month where the indices have posted losses. The NASDAQ led the way by dropping 9% loss, and the Value versus Growth trade continued as the DJIA only lost 4% for the month. Every index along with the Aggregate Bond Fund (AGG) posted losses.

It was the same for the sectors, all of them were in the red. Yes, that is correct, even Energy (XLE) lost 4% for the month. Healthcare (XLV) was spared any major selling losing 2.2% while Consumer Discretionary (XLY) got clobbered losing 11.7%. The sub-sector of Commodities (BCI) was crushed giving up all of its yearly gain, dropping an incredible 19%, sending it into the red for the year.

Q4

The fourth quarter ended and it is the only quarter where every major index except the NASDAQ posted a gain. Value was preferred in Q4 with the DJIA easily outperforming all of the indices with a 15+% gain. That was the beginning of the bifurcated market where Value was bought and Growth was sold.

Just when some thought the Energy trade was over, the sector (XLE) continued its winning way with a 21% gain, while commodities as measured by BCI went the other way by posting a 14+% loss for the quarter. Consumer Discretionary was the other sector posting a loss in Q4 dropping 9.4%. Financials, Healthcare, and Small-cap value all posted double-digit gains in the last 3 months of the year.

Year To Date

The year ended with the worst performance for equities since 2008. The equity market lost 10 Trillion in market cap this year. That is a hit to the wealth effect that will not go unnoticed as we enter the new year. Stocks weren’t alone in their demise, Bonds as measured by AGG suffered their worst return in history. The 10-year Treasury began the year at 1.6% and closed today at 3.86%. That explains a lot of the weaknesses in the markets.

All of the major indices posted a double-digit loss in ’22 with the exception of the DJIA, which was down only 8.7% for the year. The S&P finished the year down 19.4% while the NASDAQ suffered a 33% decline. The semiconductor index was responsible for most of that weakness, losing 36% in 22.

As we have seen all year, Energy has been the place to be, and as the year ended it was the ONLY sector in the black with a 57.7% gain. Utilities were basically flat and Healthcare lost 3.5%. Everyone is talking about how badly Technology has been sold off, But Consumer Discretionary was down a whopping 37%, while Technology (XLK) closed the year off 29%.

The Daily chart of the S&P 500 (SPY)

The last nine trading days have been sideways (a 22-point gain) for the S&P as the Holiday season kept both the BULLS and BEARS distracted.

2022 has been full of them, and this is yet another one of those crossroads moments. The Index can either break higher or lower form here and neither would be a huge surprise. What would be a surprise is a rip-roaring rally to start the new year. Then again with most analysts and research firms expecting a poor first half, anything is possible.

It’s been a one-day, one-week-at-a-time market and I don’t see it changing much just because we turn the page on the calendar.

Final Thoughts

Market participants followed the Mick Jagger opening quote as they took this tax loss season to another level. As the week unfolded the market action started to remind me of the tax loss selling I saw during the 2008 Financial crisis. It was unrelenting for many stocks and one has to wonder when the selling abates to bring about a tradeable bounce. Every area of the market has been affected, and the well-known names are also included. Amazon (AMZN) is trading where it was during Covid. Apple (AAPL) is at June 2021 levels. The list goes on and on.

When I step back and think about this tax loss selling being so brutal there is no surprise – it should be. 2022 has been a nightmare and there are plenty of stocks where an investor can claim a loss for the year. I wish I knew some “rule” to use that told us when to buy these stocks but I do not. Sometimes, like this past January, we don’t see any bullish action in the beaten-down tax losers at all. At other times they seemingly come out of nowhere and take off. It’s not guaranteed that just because a stock is experiencing heavier-than-normal selling for tax reasons that it’s going to shoot higher once that selling pressure is removed.

I do lean toward a “bounce” in many of these names as we start the year for a variety of reasons. Of course, what I want and what the market does can be two very different things. Given some of the near-term positive catalysts I’m tracking, it will be more damning if stocks don’t rally soon and instead the S&P 500 breaks below its recent low. If that occurs, we’ll turn the page into 2023 and find it might be a sequel to this year.

Happy New Year and Best of Luck to Everyone!

Postscript

Please allow me to take a moment and remind all of the readers of an important issue. I provide investment advice to clients and members of my marketplace service. Each week I strive to provide an investment backdrop that helps investors make their own decisions. In these types of forums, readers bring a host of situations and variables to the table when visiting these articles. Therefore it is impossible to pinpoint what may be right for each situation.

In different circumstances, I can determine each client’s situation/requirements and discuss issues with them when needed. That is impossible for readers of these articles. Therefore I will attempt to help form an opinion without crossing the line into specific advice. Please keep that in mind when forming your investment strategy.

Thanks to all of the readers that contribute to this forum to make these articles a better experience for everyone.