This 2nd Week of December 2022 Thoughts
Fed Fund Watch: the 10-Year Note was 3.89% last week and is now 3.52% Your Annual Holiday Appreciation From Harry, David, and me, will be showing up in the 2nd week of December!
RMD Countdown: we can still take charitable contributions from your IRA, but get with me ASAP. Take our Risk Assessment!
There are three weeks before New Year’s Eve: check out “What Issues Should I Consider Before the End of the Year?
The Holy Grail for investors is understanding the business cycle: it expands (rises) and contracts (declines) over time. Stock Markets follow a cycle, but they do not track the economy. Know the difference.
Many of you have seen some version of this graph over the years, overlaid with the economic cycle. Spoiler alert…the economy and the market do NOT move in lockstep: the market leads the economy (up AND down) by 6 months or longer. After years of rising markets, it is easy to forget that as a leading indicator, the market will have one final blow-off and this can predict that the economy has topped.
Think back to the beginning of this year when the economy was as strong as horse radish: the market peaked on January 3 rd, and it has been downhill all year. Why does it matter to you? Now, who is “the market” you ask?” The market is the collective wisdom of traders, investors, and economists, all smooshed into this moment in time. And, since most people would rather not suffer losses, the market wants to avoid the downside: every trade…every tick of every day…is a battle between the Bull (UP) and the Bear (DOWN). My question to you, today…is where will the Bear Market Trough be?
This chart shows the rise in home prices the month before Covid began and then, what has happened since the housing peak last spring. Gone are the days when you listed a home and buyers got in a bidding war, often driving the price higher. For those of us who have not bought or sold, we have been oblivious to this, but for sellers today, it is a cold splash of water to see how buyers have vanished.
Why does it matter to you? The chart with the red lines shows what a difference a day
makes. Today, expect for it to take longer to sell your house, for buyers to be in bargain
mode and for the mortgage rate to be higher than the 3% of the last few years.
Tensions have increased between the U.S. and China and the issues are important: Chinese policies about data; human rights; personal information; cybersecurity; government procurement policies and ownership of intellectual property. Apple did not diversify its manufacturing outside of China and is now paying the price. More companies will flee China as soon as it is financially expedient to do so.
This shifting landscape could be problematic for investors looking at where to invest, and where to avoid. Over the last several decades we have benefited from low costs…which led to low prices at the cash register. As well, companies such as Apple, Starbucks, McDonalds, and Nike have a strong presence in China, with significant revenue coming from Chinese customers. Most worrisome, though, is that U.S. chip makers have significant revenue exposure to China through Taiwan and are likely to experience heavy losses if the U.S. banned exports of semiconductors to China.
Why does it matter for you? How far this decoupling will go is difficult to forecast. China remains an important market for U.S. businesses and farmers. In 2021 $149 billion of U.S. goods and $37 billion in services were exported to China as global trade recovered from the pandemic. The number of U.S. jobs supported by all exports to China was just over 858,000 in 2020. In the Summer of 2021, I wrote about divesting from countries like Russia, China and Saudi Arabia, and every client wanted to do that. My question to you today, is this; “It was easy when Russia and China were at the bottom of the barrel, but how would you feel if these countries were the best returning areas next year and we did not own any of them? Let’s talk about this!
Required Disclosures: Always read the fine print! This content reflects the opinions of Julie Skye and is subject to change without notice. This content is for informational and entertainment purposes, and it is not a recommendation regarding the purchase or sale of any security. There is no guarantee that any statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Securities investing involves risk, including the potential for loss of principal. There is no assurance any investment plan or strategy will be successful.
Julie is an Investment Advisor Representative of Sustainable Advisors Alliance, LLC (SAA, LLC): Advisory services are provided by SAA, LLC.
Registration with the SEC does not imply a certain level of skill or training.