I truly hope that 2022 was a good year for all of you from a non-financial perspective. Indeed, I acknowledge that there are items like health, family, friends, spirituality, etc., that also really matter in determining one’s well-being and happiness. With that said, my readers and clients don’t generally look to me for advice and guidance in the non-financial areas. I, therefore, will now opine on the year 2022 from a financial perspective. Unfortunately, for the most part, 2022 was a terrible year, based on all objective standards. There were, however, some bright spots to look at, even in a terrible year for financial markets. Many of our clients own small businesses, and they, by and large, did very well during 2022. Almost all our clients own private residences and vacation homes and the values of those properties soared in value during 2022, especially if they were located in Florida. However, if you owned stock and bonds during 2022, it truly was a year to forget.
After three mostly very positive years in the financial markets, 2022 opened on the plus side. However, it all began to go downhill when Russia invaded Ukraine in February of 2022. Oil prices began to climb, and a cascade of rising prices in food, consumer goods and gasoline ensued. Adding to inflationary pressures were factory shutdowns in China due to their Zero Covid policy, and supply chain back-ups in ports throughout the world. Thus, inflation, which had begun to manifest itself in the second half of the year of 2021, began to run out of control as we moved through 2022. The Federal Reserve, who were previously labeling 2021 inflation as temporary and “transitory”, found themselves way behind the curve with 2022 inflation rates approaching 10%. As a result, the Fed and Chairman Jay Powell embarked on an aggressive financial tightening policy by raising interest rates following meeting after Fed meeting. As a result, most financial assets, like stocks, bonds, commodities and crypto began a dramatic freefall and repricing.
But I know I’m not telling you anything you aren’t fully aware of already. So rather than continuing with all the sordid financial stories of 2022, (I’m not going to mention the Elon Musk Twitter disaster that spilled over to Tesla, or Mark Zuckerberg’s questionable romance with the metaverse, or Mr. Bankman-Fried’s FTX disaster), I will rather focus on some market perspective.
As you know, financial markets don’t perform well every year. In fact, close to 1 out of every 3rd year the stock market is negative. Sometimes you just need to take a few steps back before going forward again. 2022’s confluence of negative financial and geopolitical events will not happen every year. And, currently, Jay Powell is akin to a wet blanket smothering a stock market that would like to fire up again. Every time the markets begin to recover, Mr. Powell adds more moisture to the wet blanket with tough talk about staying the inflationary-fighting course. Powell is aware of the wealth effect of a rising stock market; which is that when markets soar, consumers spend more. When consumers are freely spending it’s very hard to control rising inflation. So, Fed Chairman Powell would like to slow business growth down and keep a lid on the stock market until he sees inflation going down significantly.
Here’s the good news. We see signs that the Fed’s interest rate increases and tough talk are working. The economy is slowing, gas prices and commodity prices have dropped, supply chain back-ups have eased, and China has re-opened its factories. As a result, sooner than later, the Fed will reverse course. I expect that during the first quarter of 2023 the Fed’s interest rate policy will run its course, the tough talk will end, and many good companies that experienced large stock prices decreases will begin to rebound.
Thankfully, from a financial perspective, we who are involved with investment management are very happy to see 2022 nearing its end. We do expect much better results for 2023. I sincerely hope that 2022 was a good year for you, despite the financial market’s malaise.
Wishing all of you a successful, healthy, and fulfilling 2023!
Hang in there, people, keep your perspective, stay the course…better times are ahead of us.