Winter 2023 Newsletter

Happy New Year! We hope everyone had a fabulous Christmas season.

Another year, more exciting times in the global economy as we seem to have transitioned from a longer than normal “season” of growth outperformance, to market participants valuing companies based on actual earnings & cashflows. Go figure! It’s also a new “season” for me, personally, as I’m about to send my “little girl” off to college…changes are all around.

It goes without saying but…we are going to say it anyway: 2022 was historically rare and we are not referring to the broad-based decline in global stock markets. Drawdowns occur from time-to-time and are to be expected; especially after many years of mostly upward momentum. Last year caught many investors of all types off-guard as traditional portfolio diversification seemingly failed in a spectacular fashion. Simply put, stocks and bonds moved down together in 2022 to an extent not seen since the 1970’s.1

The driver of this dynamic was likely surging inflation and the global policy response it caused as central banks rushed to hike interest rates after what appeared to be initial complacency. Ultimately the worldwide response to Covid created more demand in the economy at the same time supply was limited based on a variety of factors, including Covid. Circular right?! The pandemic response by politicians and central banks, who may have been a cause of inflation, which those same people are currently trying to fix.

The verdict is still out on whether the “fix” of much higher interest rates will do more harm than good and whether current high levels of inflation are temporary or have become more structural in the economic system.

Before we unpack the “facts” as we see them, lets recap what we feel was most relevant in 2022:

  • In 2022, the S&P 500 dropped by at least 2.5% in 7 out of 12 months.1 In the last 94 years, this happened only in 2 other occasions: 1931 and 1937.1 The high-flying growth companies of the past several years got hit hard as higher interest rates brought down the perceived value of future cash flows. We identified this risk early and reduced exposure to this area of the market.
  • The Bloomberg US Treasury Index returned -12.5%, its second straight full-year loss and the biggest in its four-decade history.1 The 1st quarter loss of 5.58% was the biggest on record for a single quarter.1 Our market and fundamental inputs had our portfolios generally underweight duration all year and thus we managed to dodge a sizeable effect of last year’s carnage in fixed income.
  • The global brent crude oil benchmark traded in a $64 range, the largest since 2008, and at times experienced the biggest weekly swings on record.1 At its peak, oil futures traded past $139, but the gains largely evaporated given concerns that central bank efforts to curb inflation will bite into growth and uncertainty over China’s demand prospects linger. Despite the volatility in the price of oil, our allocation to energy stocks proved timely as the sector gained a massive 64% on the year.1 We are now carefully risk managing this theme as the economy slows.

With that, we’ll put 2022 in the rearview mirror and look forward. Below are some key points on the set-up as we see it going forward:

  • Historically interest rate hikes operate with a lag of roughly 18 months to the real economy…meaning that we have likely not yet felt the economic impact of the rapid and sharp rise in the cost of money. We remain cautious on stocks currently but are beginning to see significant opportunities develop in the bond market as a slowing of the real economy will likely benefit areas of fixed income.
  • Economic data has slowly started to roll over with the bulk of the economy already in contraction. Although the data shows a sharp slow-down, we would be remiss if we ignored the fact that consumers are coming off a historic boom mostly from covid stimulus. So far, our interpretation is that normalization has taken place and has already been significantly reflected in many consumer-oriented stocks. Energy prices will be a key input to our forward outlook on the health of the aggregate consumer both in the US and abroad.
  • We remain highly focused on China, as the world’s second largest economy is finally starting to emerge from harsh pandemic lockdowns. In the past several global economic downturns it has been large scale Chinese stimulus that has acted alongside central banks in order to boost economic activity out of recessionary territory. Following recent protests, authorities in Beijing have announced plans to ramp up credit, however, the adjustment phase back to normal in the country could cause continued supply chain disruptions and boost global energy prices. Our eyes will be sharply focused on the facts as they emerge.

As investors, the most important thing is undoubtedly emotional discipline. There will always be a bevy of economic currents to monitor and potentially act on. Having avoided a lot of the damage possible in ’22, we are optimistic with the position our clients’ portfolios are in. Patiently waiting to strike as we continue to stay grounded in the data regardless of the market & economic backdrop. Onward & upward we go…

As always, we are available at any time to talk through any of this with you…please reach out! 

Ryan A. Mumy, CFP®, AIF®
Chief Investment Officer

1 Source: Bloomberg – 12/30/2022

Disclosures: The information provided in this paper is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment, legal or tax advice. Capital Investment Advisory Services, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of or reliance on the information. This information is subject to change and, although based on information that Capital Investment Advisory Services, LLC considers reliable, it is not guaranteed as to accuracy or completeness. Source information is obtained from independent financial data suppliers. For investment related terms definitions, please visit: Past performance is no guarantee of future results. Advisory services through Capital Investment Advisory Services, LLC. Additional information about CIAS and its From ADV Part 2A are available on the SEC’s website at