Market declines are not linear. Sadly, we must suffer through a series of drops and recoveries until the markets reach their new levels. Like being sandpapered, 2022 was a very long year of downtrend. Veeeery long. The year saw 4 separate and distinct declines of 10 percent or more and 2 other declines of 6 percent or more. If it felt like Mr. Toads wild ride…. It was. Like past bear markets (2000, 2002, 2008) the pattern on the decline has to run its course. Looking back, the markets were reacting in advance to the realities to come. The lag between market moves and economic consequence is long. The vagaries of the moves are a reality that we (as all investors) must endure is just how it works.
Sitting here in 2023 we look forward to better days ahead. While market declines are not linear, neither are market recoveries. Key point that's worth repeating…. market recoveries are not linear and will be filled with false starts and backfilling declines. We had a nice bump off the bottom to start the year which has been followed by some downward market moves of recent. Parroting the press, the market uncertainties and the recent “Fedspeak” have the pundits confused. And that, my friend, is a good thing. As an “old guy” I like when the direction isn’t clear and the majority opinion split. The old adage, “markets climb a wall of worry” applies.
In 2021 and 2022 we had written ad nauseum of the economic changes that had to come. Those changes are indeed slowly happening. Rising interest rates have cooled the economy (somewhat) and we are only in the early stages. Consumer prices are moderating (somewhat) as activity slows. Corporate layoffs are slowly becoming the rage as daily announcements of job loss mount. There will be deeper issues as the cycle deepens. Current declines in cost of new and used cars, rent, new homes, electronics, and other big-ticket items portend the slowing direction. Other indicators haven’t slowed yet leading the uncertainty of how much longer rates will rise. As I said, it’s not a fast and easy process. Economics, as real life, is a bit sticky and clearly not linear.
As always, thanks for reading and feel free to respond back with any questions or thoughts you may have. Thanks too for the relationship and allowing us to be a part of your financial life. It’s a role we don’t take lightly. Have a great rest of the week and talk soon!
Ed, Frank, Tammy
Edward Stiles
200 N Union St.
Kennett Square, PA 19348
cell 610-745-1931
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