JUST LIKE THAT, growth stocks are back in vogue. Vanguard Growth ETF (symbol: VUG) has outpaced Vanguard Value ETF (VTV) by more than nine percentage points over the past three weeks. That gap in favor of “risk-on,” meaning mainly technology shares, is the biggest since those two exchange-traded funds were created some 19 years ago.
What gives? Weren’t all the strategists proclaiming a new era of value investing? It still seems that way based on what you hear on financial TV and read in investment magazines.
THE FEDERAL RESERVE raised the federal funds rate in 2022 from zero to more than 4% to combat high inflation. While those rate increases severely damaged the stock and bond markets, they made some financial products more attractive. In particular, there are three products that are more appealing now than they were a year ago: income annuities, long-term-care insurance and various interest-paying investments.
Like many people, to take advantage of low loan rates, I refinanced my home mortgage before 2022’s rising interest rates.
THE MARKET IS NOW in the heart of the corporate-earnings reporting season. Traders will soon be digesting big tech’s fourth-quarter profits, as well as a Federal Reserve meeting and monthly jobs data. That’s a lot to take in. Volatility must be high with so much hanging on the line, right? Wrong.
The Volatility Index, or VIX, has dropped significantly, nearing levels last seen during 2021’s bull market. At less than 20, the VIX—known as Wall Street’s “fear gauge”—implies a somewhat tame 30-day S&P 500 price change of less than 6%.
IS THE STOCK MARKET headed for a sea change? That’s the argument money manager and author Howard Marks makes in his most recent memo.
The sea change Marks is referring to: For four decades, the federal funds rate declined steadily—from a peak of 20% in 1980 to 0% in 2020. The result, Marks argues, was a steady tailwind for the stock market.
In January 1980, the S&P 500 index stood at 108. At its peak early last year,
DON’T LET PREDICTIONS cloud your thinking. When my husband and I first started investing, that was the wisest advice we received. You know the sort of predictions I’m talking about: “It’ll be a bad year for the stock market, so you should pull all your money out,” or “bitcoin is going through the roof, so stock up now.”
Last year, I decided to make a note of some of the predictions I read, and put them in my followup file for the beginning of this year.
AS IF WE DIDN’T already have enough evidence, here’s further proof that stock market predictions have little value: A year ago, 24 highly regarded stock market pundits forecasted that the S&P 500 would close out 2022 at 4,904, according to data posted by CNBC’s Brian Sullivan. That 4,904 was the average, with their predictions ranging from a low of 4,400 to a high of 5,330. The S&P 500’s actual 2022 close was 3,840.
Meanwhile,
LAST FRIDAY’S U.S. JOBS report was just what the doctor ordered. While much attention gets paid to the headline change in employment—which was a solid 223,000 gain in December—the bullish news was in the report’s details.
Average hourly earnings, a key measure of wage growth, were up 4.6% from a year ago, significantly less than the 5% consensus expectation. Weekly hours worked were also a smidgen less than forecasted—another “cool” reading on the inflation front.
AROUND THE TURN of the year, investment experts issue their forecasts for the next 12 months. Bloomberg says it has gathered more than 500 market predictions for 2023, with many forecasting a rough year for the financial markets.
I’ve done my research as well, and I’m now prepared to offer my forecast: There’s an 80% chance that the S&P 500 will return between -10% and 30% in 2023.
I can’t claim this as original work.
I’VE BEEN RETIRED for six years and—like many retirees—I rely on my portfolio’s appreciation, interest and dividends for most of my retirement income. The high inflation of 2022, coupled with poor stock and bond market returns, have me pondering what history would predict for 2023’s performance.
I decided to look at how frequently both the stock and bond markets have performed poorly in the same year, and what subsequent returns have typically been. Simultaneous declines in both the U.S.
THERE ARE MANY WAYS to gauge whether individual stocks and the overall market are expensive. But which valuation metric should you rely on?
The fact is, you can find metrics to buttress any market narrative you want to believe. Such confirmation bias can prompt investors to make big changes to their mix of stocks and more conservative investments—sometimes with disastrous results.
As a market analyst, writer and former university finance instructor, I’m familiar with a host of valuation tools.
FEELING DESPONDENT about your 2022 investment returns? Yes, it’s been a grueling year for almost all stock and bond investors. But some folks have been hit far harder than others.
In the bounce back from 2020’s coronavirus market crash, near-zero-percent interest rates, coupled with consumers flush with cash, made for pockets of irrational exuberance. High-risk growth stocks—like those owned by Cathie Wood’s ARK Innovation ETF (symbol: ARKK)—captured the imaginations of Wall Street and Main Street alike.
LAST WEEK MIGHT HAVE been the moment we flipped from inflation worries to recession risks. On Tuesday, November’s inflation report turned out to be cooler than economists expected. Stocks initially soared, only to sell off toward the end of the day in anticipation of Wednesday’s news. Sure enough, the next day, Federal Reserve Chair Jerome Powell delivered not only a 0.5-percentage-point interest rate increase, but also a stern message in his press conference afterward.
ARE YOU TRAVELING for the holidays? There’s good news for drivers. Average retail pump prices have dropped below $3.30 a gallon, with many states seeing prices under $3. This positive development for consumers—including those off to grandma’s house this season—comes as wholesale gasoline futures fall to their lowest level in a year.
Following Russia’s invasion of Ukraine in early 2022, and just in time for the busy U.S. summer driving season, gas prices notched all-time highs near $5 per gallon.
I HAVE CHEERY investment news: Most Wall Street strategists are bearish on stocks. Last week, Bloomberg reported that 2023’s projected change in the S&P 500 by the best and brightest forecasters is negative. That hasn’t happened since at least 1999. Consider today’s bleak consensus to be a contrarian indicator. It could set the bar low enough for a decent 2023.
If you flip on financial TV or peruse investment magazines at this time of year,
THE FTX FALLOUT IS something to behold. It’s said that the now-bankrupt cryptocurrency exchange has liabilities that could end up being twice what Enron owed when it collapsed more than two decades ago. The hubris of Sam Bankman-Fried (also known as SBF), founder of FTX, is something all investors can learn from.
It was just a few months ago that Bankman-Fried was dubbed the next Warren Buffett and 2022’s version of the late 19th and early 20th century financier J.P.
