Dear Client, Partner, Prospective Client,
While 2021 didn’t disappoint with a stock market run-up, 2022 certainly did disappoint logging the worst year for all of the major indices since 2008. There really was no where to hide, as I touched on it in previous letters, as we dealt with runaway inflation throughout a big part of the calendar year 2022. The optimistic viewpoint is that the S&P 500 has only been negative or down in consecutive years twice since 1965. Does that suggest we are in for a return to a bull market and good times ahead? We will see.
This past year saw the collapse of cryptocurrencies and specifically FTX. We saw cannabis companies, even with favorable and less restrictive legislation, absorb declining valuations and their stock prices were crushed. The FANG stocks and Big Tech in general had one of the worst years in an exceptionally long time. They also have some of the highest multiples. Growth stocks were a disappointing place to be this past year, but they should be ready to rebound in 2023. The Federal Reserve used their tools by raising rates seven times during 2022 to combat unprecedented, rising inflation. Oil and gas prices soared partly due to Russia invading Ukraine and squeezing the supply. As a firm we went more to cash in the 2nd quarter of 2022 to soften the blow and in hindsight should have done more. With that being said, it’s incredibly difficult to time the market and we don’t make a habit of trying to do this anyways. So what does this mean for 2023?
- Perhaps some normalcy for the markets, both bond and equity markets. Boring would be nice compared to the volatility we experienced last year.
- No more COVID-19 or pandemic.
- Declining equities and bonds in the same year is quite unusual-better times ahead.
- Interest rates raised at a level and speed that we rarely see; this will subside in second half.
- Retail fixing their inventory issues and starting to be profitable again as China opens up and hopefully Russia/Ukraine ends. Nike, Lululemon, Farfetch and VFC and many of the department stores have had a rough run. Maybe they finally come out of it in 2023 and it’s a better more stable place to be.
We believe that the S&P 500 will end the year with an increase of 7-12%. If earnings are better than expected for consecutive quarters, then this could be much better. We don’t believe we are going into a recession and even if we go it will be minimal in 2023. This was the trendy topic to discuss in 2022 along with how much will the Federal Reserve raise rates. We believe it will be a good year to add some duration in our bond investments but more importantly, it will be a stock picker’s market.
Sincerely,
J.B. L’Esperance, ChFC
If you have questions about our strategies or would like to open an account with Barking Sands Capital, please give us a call at 952.500.8854 or 248.687.1400 or email us at jb@barkingsandscapital.com