Stocks pushed higher Friday as the three major market benchmarks booked their best weekly percentage gains since November. On the economic front, the University of Michigan consumer sentiment index climbed in January to its highest level in nine months, which followed December’s consumer price index data released Thursday showing prices declined slightly, boosting hopes that the Federal Reserve may soon slow its pace of interest rate hikes. For the week, the Nasdaq Composite surged 4.8% while the S&P 500 jumped 2.6% and the Dow Jones index added 2%.
The latest CPI data came out, with YoY inflation hitting expectations of 6.5%. The trend of disinflation is taking hold, and investors appear to be getting too excited. Many investors are expecting a Fed pivot to stop raising interest rates, which is not what the Fed is signaling. And a recession could spoil this brief and lightly attended party.
Future Wealth’s View
There are times when investing looks easy. Making money, on the other hand, will always remain hard but a bull market often makes investing simple. The bull market from 2010-21 was one where everyone became a good stock picker. With no research other than some random advice from a neighbor or a comment from a “guru” on CNBC, investors blithely threw money into the stock market and reaped gains. But then, as grandma often taught us – all good things must come to an end. As Bob Dylan once said “The times, they are a changin’.”
2022 was a year where stocks and bonds got punished and left everyone a lot poorer. The long held cookie cutter approach that most financial institutions adopt – the 60/40 allocation of stocks/bonds got punished so badly that it has become a commonplace joke. The fact is investing is hard again. In fact, investing has always been hard. The bull market just made it look easy. This is akin to getting a free business class upgrade on an international flight. The next flight in coach class will hurt and it is time to earn and pay up for business class.
In 2022, Future Wealth LLC’s return across all our client’s portfolios was -15.1%. This compares to -18.2% (S&P 500) and -33.1% (Nasdaq). Future Wealth’s performance was also better than most popular actively managed mutual funds – Fidelity Contrafund (-28.26%), American Funds Growth Fund of America (-30.72%) as well as the popular passive ETFs – SPY (-18.2%), QQQ (-32.5%).
To be successful in 2023, investors have to revert to the old tradition of putting in the hard work – Nothing comes easily.