“You can do anything you set your mind to, man”

Stocks traded lower on the last trading day of the year, capping off a year of ups and downs, mostly downs. Investors enter 2023 cautiously, prepared for the worst but hoping for the best.

Don’t look down. I probably should have started with “don’t look back” but given last year’s performance in almost all asset classes, I settled with “down”, and for a good reason. Over the long holiday weekend, I tried my hardest to focus on going forward with a positive outlook. To do so, I had to try really hard not to think about the year that just ended on a fittingly negative note. But alas, nearly every acquaintance I made this weekend involved a discussion about the market or the economy. Do you want to know what the overall sentiment was? No, of course, you don’t, because you know that the feeling was gloom. Here are the results of my unofficial, un-scientific, cringe-worthy-to-my-stats-professors survey.

Anyone who was from the Baby Boomer generation or older, the statement “here we go again, another 2008,” seemed to be the consensus amongst the group. They are smart enough to know that it is time to cut back a bit on their spending because, “who knows what will happen with the economy in coming months.” There is also another challenge for the boomers. Most of them are overinvested in stocks, a result of the low-yielding bond market in the past 20 years. Though they are somewhat diversified, many boomers slowly pushed most of their allocation into growth stocks in the past 10 years as those stocks became the money makers. Finally, they are hopeful and somewhat optimistic, because they have been around long enough to know that markets don’t go down forever and that in the period beyond the 2008 decline, most folks raked in fortunes by having a long-term focus. So, in a nutshell, cautious hope, but nervous overall.

Anyone in the Millennials, Generation Z, and Gen Alpha were of the consensus that “this really sucks, my savings account was supposed to double every year!” Let’s unpack that for a moment. Many people in those generations have only ever seen the market perform well. In recent years, even through an “unprecedented” pandemic, stock market returns were far above average. Most of the people in those generations use the words “savings account” to refer to their brokerage account, which undoubtedly were more heavily allocated in growth stocks, which took the brunt of the pain in 2022. BUT to be sure, higher risk is OK for someone who is younger, presumably doesn’t rely on that money to live, and has time to be patient and wait for the markets to recover. The problem is that many of them put their money to work hoping for quick, short-term returns to, perhaps, buy an engagement ring or put a down payment on their first homes… hopefully not to pay bills. The first 2 can wait, but paying bills… well, you know. Sadly, for many of them, this has been a tough learning experience. Kind of how you first learn not to touch a hot pan with your bare hands. To sum up, those folk have been burned, they are young and optimistic, but they are expecting more pain ahead, after their “…snap back to reality, oh, there goes gravity…” moment (that quote along with the today’s tag line is by musician Eminem, from the song Lose Yourself).

You may have noticed that I have left out the Generation X folks. My wife and I fit in at the very beginning of that generation as does musician Eminem, quoted above. Because we are right on the cusp, we feel like boomers in some of our daily goings about, and Gen Xers in others. Most folks in this generation are extremely anxious. They aren’t quite at retirement age and saving enough for retirement has been challenging for my Gen X friends. Many of them have either just put their kids through college or still have may have some kids in college. Some of the folks I spoke with have at least 1 kid living at home with a non-paying “internship”, which means that they are still on the books, despite being in their 20s. For this generation, expenses are high, and savings are not where they wish they would be. They had hoped to start saving aggressively once the kids were finally on their own. Everyone I spoke with in this group was extremely concerned about the year ahead after watching what savings they did have in the market get cut down.

Now, I am sorry to have started off the year on what may seem like a negative note, but there is some positive here. First, general market consensus is decidedly negative, according to not just my long-weekend survey, but also almost every well-known gauge of market sentiment. This means that most of the negativity is already built into the market. That doesn’t mean that the market can’t go down, but that, possibly, most of the big pain is behind us. That also may mean that any positive surprises could be very good for our ailing portfolios. The weeks ahead are going to be very challenging starting with this very week. The week ahead will not only feature some critical economic numbers, but also FOMC meeting minutes along a couple of high-profile Q4 earnings releases. Earnings season “officially” begins next week! The final takeaway from my weekend survey was that my Baby Boomers, while nervous and upset, were the most optimistic. They have the wisdom and experience to know that long-term focus pays. They have seen this before. They know that it turns out OK, and that they will probably have to adjust their allocations in months ahead.

LAST FRIDAY’S MARKETS

Stocks slipped on Friday as negative sentiment held indexes back. The S&P500 fell by -0.25%, the Dow Jones Industrial Average traded lower by -0.22%, the Nasdaq Composite Index slipped by -0.11%, and the Russell 2000 Index declined by -0.28%. Bonds pulled back and 10-year Treasury Note yields climbed by +6 basis points to 3.87%, topping a tough year for bonds. Cryptos gained +0.42% and Bitcoin lost -0.09%.

NEXT UP

• S&P Global Manufacturing PMI (Dec) is expected to come in at 46.2 in line with earlier flash estimates.
• The week ahead: More PMIs, FOMC Meeting Minutes, JOLTS Job Openings, monthly employment numbers (super important), Factory Orders, Durable Goods Orders, and some earnings. Check out the attached earnings and economic calendars for times and details.
• Also: Keep an eye out for Fed speakers, they are back from holiday and ready to rock your world. Check in daily for Fed speaker schedules.