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Preparing For 2023: Market Commentary

Clint Carpenter, Director of Operations

I think part of what makes a market correction or bear market so uncomfortable, when you’re in it, is just not knowing how long it will last.

This one in particular, which started last year, might feel to some people like it’s lasted forever. It can get difficult to remember even 2 years ago when markets were up double-digits.

As we’ve said before, we look to turn these times into opportunities. We can’t say how long this market volatility will last because no one can, but in the meantime, maybe some quick historical data might help some feel a little better.

If we look at the last hundred or so years of S&P 500 returns for instances of when the market has posted a double-digit loss for the year, we come up with 9 examples. Some recent ones are 2008 of course, and 2002, but we can look all the way back to 1937. So, in 7 of these 9 times that the market fell double digits, the market has finished substantially higher the following year.

Just one quick example of that, in 2008, the S&P 500 finished the year with a return of negative 37%. 2009, it was up 26.5%. Back in 2002 the market posted a loss of nearly 22%, but was up nearly 29% the following year. We’ll post a chart that shows you all of these examples but I thought I’d add this for that historical perspective.

Kris Venezia, Market Analyst

There's a lot going on, but I'm going to focus on consumer spending in the U.S.

We've gotten some reporting out on consumer spending. It's been fascinating how spending has shifted since early 2020.

To quickly recap, we had 2020 and 2021 as years where people spent money in specific areas. Tech spending was popular, so think new laptops, new earbuds, new televisions, new tablets. You had spending on furnishing and renovating homes. Furniture, appliances, a new grill, toys for the backyard. There was a tremendous amount of spending on online shopping. Etsy, eBay, Amazon, etc.

You get to 2022, and that changed in a huge way. Consumer spending has gone from buying things to buying experiences.

People are flying, people are going to casinos, people are going out to eat, people are booking cruises. And it's not just that people are spending money on these experiences, but they're spending more than they ever have. It's not just that these things have gotten more expensive. People are buying airline tickets more and when people go out to eat, they're buying more stuff. Maybe the bottle of wine instead of a glass.

The spending trends continued through the end of 2022. There were some expectations that spending would normalize, and people would shift to buying more things around the holidays.

Data we've seen so far shows that didn't happen. The U.S. Census Bureau had a December retail sales report that showed slower consumer spending on things across the board.

We can compare that to airlines who've announced in early January that bookings are stronger than ever for the first several months of 2023.

If you see a story that says holiday spending was up "x", I would check the source. Retail groups are going to push funky data because it's in their interest. They can say more dollars were spent in 2022 than 2021. And that's true because things cost more in December 2022 than December 2021.

I'll finish by saying the consumer and the employment picture are the two areas of the economy to pay attention to over the next 6 months. Do we see consumer spending normalize? Do we see it soften with the inflation we've seen over the last 12-plus months? Do people spend less and that spurs layoffs? Do layoffs happen and that softens spending? Do people continue staying employed and continue spending like they have been?

Those are all questions on the radar to kick off 2023.

Daryl Eckman, President

I want to review what has happened.

We did move about a year, year plus ago, moving out of the long term bonds.

We didn't like the rates of bonds in 2021 and 2022 and there was risk in staying in those longer term bonds.

Bonds values go down when interest rates go up, so the timing was good. We saw 2022 was a tough year for bonds.

Interest rates moved up in 2022, and not only did they rise, but they went up a good amount through last year.

We have been nibbling into one and two year Treasuries. The rates there have been solid. We are now extending out our bond maturities up to 5 years and beyond.

We will be having some of those conversations with you where appropriate.

We feel the Federal Reserve is getting closer to ending their tightening. That could change, but that's where we feel on bonds.

On the economy, the big debate is what happens over the next several months. There's a conversation of hard landing versus soft landing. If there's a recession, how severe will it be. Some people think there will be no recession.

I have been on the more pessimistic side of the recession talk.

We have been paying attention to the real estate market for clues towards recession.

We have been seeing some softness in this sector, the real estate sector.

I think the real estate market and how the Federal Reserve navigates challenges will be big parts of 2023.

We have been doing some nibbling in the portfolios on stocks. Very little nibbling, but trying to take advantage when we can.

We want to be patient and measured and not make any drastic moves on the stock side.

Clint Carpenter

Finally, two quick things to be aware of in the new year when it comes to new tax rules… One of the last bills congress signed last year has changed the beginning age for required minimum distributions starting in 2023, that new age is now 73. That’s the age that people must start taking distributions from tax-deferred IRAs.

Those of you still contributing to those IRAs, your IRA contribution limits are increasing by $500 in 2023- you can now make a contribution of $6,500, or $7,500 if you’re over the age of 50.


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