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Weekly Market Update for December 30, 2022

by Jim Ulland

The best thing about this week is that it marks the end of a terrible year in financial markets, in which the S&P 500 was down 19.4% and the NASDAQ was down 33.1%. Fixed income got pounded as well. Only energy stocks battled this trend. If you take a longer-term perspective, one can be somewhat forgiving for 2022. Over the last ten years, the S&P 500 was up 174% and the NASDAQ was up 253%, both including 2022.

The villains of the 2022 drama are well known. There is Covid, which triggered massive government over-spending that resulted in inflation. The Fed kept interest rates too low and generated additional inflation. When the Fed realized its mistake, it raised interest rates rapidly, which became a huge headwind for markets and the economy. The Ukraine war added to inflation with supply chain disruptions, as well as the human tragedy. China was a factor due to its size as the world’s second largest economy. Their Covid response of locking down the country caused supply chain disruption and reduced growth. Now they have reopened to relatively low vaccination/booster rates and a Covid outbreak.

2023 is setting up to be a lot better than 2022. We still may have to work through a recession or, at least, an economic slowdown. However, inflation is trending down, and this will allow the Fed to pause its rate-raising frenzy. Stocks are cheaper, a lot cheaper, than at the start of 2022. For instance, Pfizer trades at a price/earnings ratio of eight and has a dividend of 3.2%, with Covid vaccination and boosters probably becoming an annual preventative.

Fixed income is positioned to rally. Tax-loss selling hit the fixed income market this month. Prices are now at a point where it is relatively easy to put together a portfolio paying 7%, unheard of at the start of 2022. As the Fed lowers rates, possibly by the end of 2023, these securities could bounce sharply higher. While waiting, you can enjoy the 7%.

The war in Ukraine is likely to end in 2023 as well. Both sides talk of peace, although with conditions unacceptable to the other. Yet, peace will come at some point. International trade should return to pre-war levels, with the exception that Europe must replace Russia as a crude oil and natural gas supplier. China is reopening. Their manufacturing capacity will help supply chains. Their economic activity will boost worldwide growth. Covid will become manageable.

2023 will require patience. We profoundly appreciate the patience our clients have shown in 2022. We feel this patience will be rewarded in 2023. Thank you.

For the week, the 10-yr Treasury was up +13bps to 3.88%. Monday was a holiday. The S&P 500 was down Tuesday -0.40%, Wednesday -1.20%, Thursday +1.75%, and Friday -0.25%. For the week, the SP 500 was –0.14% and the NASDAQ -0.30%.

Wall Street will start the year with a four-day week. We too will be closed on Monday. The news next week will be on Friday with the December Jobs Report. The consensus is that job increases for December will be fewer than November, reflecting the Fed’s higher interest rate drag on the economy. With tax-loss selling at an end, look for a rebound in the markets.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors

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Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464