On behalf of all of us at Family Financial Partners, I hope your family’s Christmas and New Year were full of joy. Here in the Smyth household, Kerri and I celebrated year two as Mr. and Mrs. Smyth on New Year’s Eve. The FFP team is glad to be back at it, fully engaged, as we work through and plan for all the fun activities in store for your family in 2023.
Those of you who have opened your statements are probably thinking, “Boy, 2022 was a tough year in the markets.” There’s no denying it — the stock market is on sale. Ironically, the stock market tends to be the one thing that nobody is happy about when it is on sale.
2022 was truly an awful year as the Federal Reserve began its interest rate hike policy in an attempt to battle inflation. Speaking of inflation, I know that many of you have been frustrated by the higher costs associated with financing a new home, purchasing a vehicle, or trips to any retailer. Inflation, measured by the Consumer Price Index, rose by 6.5% in 2022.
New year, same problems.
However, there are several pieces of good news.
On earnings calls, we are continuously hearing that supply chain problems from 2021 and 2022 are finally being ironed out. For example, on its 4th-quarter earnings call this week, Taiwan Semiconductor said that the automakers would have enough semiconductors to hit their vehicle production goals in 2023. This is good news for those of you who are thinking about buying a new car in late ’23 or early ’24. New car prices should be lower. Continuing that thought, used car prices should also be lower as new car inventories build.
Here’s a recent article suggesting that inflation has indeed peaked.
We’re also seeing a weakening dollar, which should help large corporations that have a significant portion of their revenues derived from outside the U.S. — think Apple, Johnson & Johnson, and Boeing, for instance. In addition, China is about to join the worldwide post-Covid party with its huge portion of the world’s consumers ready to get out and spend, much like we saw in the U.S. after 2020. That certainly bodes well for global growth moving forward.
Finally, I believe that the Fed is roughly 80 percent through its rate hike cycle, meaning that while additional rate hikes may be coming, the majority have already been made. The economic reports have been showing us for many months that these hikes are beginning to work — the economy and inflation are slowing as supply chains repair themselves. This is exactly what the Fed needs to be able to not only pause its rate hike strategy, but actually be done with it.
All of this is to say, I believe that 2023 will be a year of redemption. Just as spring will soon bring new life to the Bluegrass, I’m optimistic that we will also see new buds of growth in the financial markets.
There are all sorts of gloomy prognosticators who make projections based on the idea of perpetual motion — that if things are bad, they must get worse. As a realist, I look at the markets from a cause-and-effect aspect. They have been going down because the Fed has been raising rates. When it ends its rate hike cycle, the hope is that the market should rebound accordingly. It’s a teeter-totter.
Think about it: The goals of the companies that we invest in haven’t changed. Employees at Microsoft, Amazon, and Ford are all clocking in each day and working toward their corporate goals. Achieving those goals leads to financial prosperity at that company. Financial prosperity is reflected in that company’s stock price. I know it’s easy to get depressed in the news cycle and think nothing will change, that it will only get worse. Please do keep in mind that employees at companies you own are working each and every day to prove that theory wrong. All of them want a raise; all of them want a promotion; all of them have goals for their families.
And that’s the beauty of America — that every day it reinvents itself through ingenuity, which eventually makes its way into the prices of the stocks in the stock market. While I cannot guarantee when it will happen next, I can tell you that, in my 26 years in the business, the market has never failed to make a new high.
Let me say that again: The market has never failed to make a new high.
*Past performance is no guarantee of future results.
I have a question for you: Do you remember what number the Dow traded at when you first started investing? For me it was 6,813. Even with the tough year last year, at the time of this writing, it sits at 34,248.
You don’t have to be a math wizard to see that’s a massive increase over the last 26 years. As an optimist who believes in America, I don’t think 2022 was the high. Do you?
I’d love to hear from you. What’s your Dow number? Let me know at firstname.lastname@example.org. And if you don’t yet work with us and would like to review your strategy and see what positive tweaks we can help you make while the markets are low, just ask. Everything’s on sale. Opportunities are there for the taking.
Spring is coming.
Article by David Smyth, Senior Partner at Family Financial Partners — a financial services firm in Lexington, Kentucky.
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