Watch the CPK Market Action Report: January 2023

Rising bond yields help to squander any hopes for a Santa Claus year-end rally. What lies ahead for the markets in 2023 and how should investors be positioning themselves?

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Market Action Report

January 2023



Rising bond yields help to squander any hopes for a Santa Claus year-end rally. What lies ahead for the markets in 2023 and how should investors be positioning themselves?   

That action starts, NOW!


For the month of December, stocks basically wiped out their gains from November with the Dow Jones Industrials sliding -3.12% and -4.57% for the S&P 500. The Nasdaq Composite continued its trend for the year posting the largest loss for the month posting down -6.81%. 


Rising rates were a material headwind on stocks in 2022. For the year, the Dow Jones Industrials declined just 8.74%. However, the S&P 500 and the Nasdaq were down much more at 19.64% and 33.47% respectively. 

Just like the saying goes, “don’t fight the Fed”. When the Fed was artificially stimulating the economy by dropping rates during the pandemic, the markets were screaming higher. Well, the exact opposite happens when they raise rates and that is generally a time when cash will be your friend. It definitely was for us in 2022 and continues to be the case.


The rise in treasury yields in 2022 was simply historic. We watched yields virtually double with the 5yr closing at 4%, the 10yr at 3.879% and the 30yr at 3.975%. However, declining inflation and a slowing economy should put pressure on longer dated yields in 2023 creating a potential opportunity the longer high-quality bonds. This drop in yields may also be a very positive surprise for equity markets as well. 


Crude oil recovered from a swift drop early in the month to close out at $80.45 per barrel. While the EIA report was on balance bullish for the oil market as it indicated an uptick in consumer demand; however, that was not enough to offset the macroeconomic headwinds related to a resurgence in Covid cases in China that have been weighing on sentiment in recent sessions. In the short term, oil looks to remain range bound between $70 and $80 per barrel.

Copper finished the month virtually flat at $3.80 and well off the short-term resistance level of $3.90. This move reflects the late month news of a massive spike in Chinese Covid cases as they abandon their zero covid policy. A breakout in the copper market would be a positive signal for those hoping for a soft landing for the U.S. economy while a breakdown would be a clear macroeconomic warning sign.

Gold edged up slightly for the month closing out at $1,822.30/oz. While gold is in a near term uptrend, the risk of another hawkish shock to precious metals remains. 


The Dollar Index ended 2022 with nearly a 10% gain closing out at 103.49. However, at its peak, it was well over 20% higher. As we enter 2023, the outlook for the dollar is much more mixed due to the Fed nearing the end of its rate hike campaign, an aggressive ECB and a decline in inflation and growth here in the U.S. If we can get the dollar to decline further towards 100 in the first part of 2023, that will be an unanticipated positive tailwind for risk assets to start the year. 


Housing reports continued to show some signs of slowing albeit they came in above consensus. For markets, this general trend of easing is a good thing as it reflects the Fed’s effort to cool the economy. Looking ahead to 2023, the housing market typically peaks well before the business cycles does and based on that historical fact, we remain on pace for a mid-2023 recession. 


I stated last month that I would be very cautious to chase any rally right now. While many stocks in the Nasdaq and S&P 500 appear to have experienced substantial declines in 2022, it does not necessarily mean that they are fairly valued yet. 

For months, I have been sharing data with you that clearly shows the economy is slowing and we have a Federal Reserve that is raising interest rates to assure this will happen. However, it can take time for this to be reflected in consumer spending, the overall economy and in the markets. Investors should not be fooled by this delay. 

The current earnings of the S&P 500 is about $189. This makes the P/E ratio (Price divided by earnings) about 20. This is quite high when you consider the average historical range for a “normal” economy is between 13 and 15. A P/E ratio of 20 would generally indicate that we are either in or are headed towards a strong economic growth environment and we are not.

Although some companies are already taking actions to cut costs, it is highly anticipated that corporations will be providing downward earnings revisions in the coming months that could potentially trigger a decline in the S&P 500 to a range of 3,000 to 3,300. This could present a loss of 15-21% for the first 3-6 months of 2023. 

A price target of 3,000 for the S&P 500 is absolutely plausible when you consider a mere 6-7% revision in earnings to $176. This would lower the P/E ratio to around 17 which is still elevated but much better than the current level of 20. 

This is just one of the many variables to consider for the first half of 2023 and should be a very real concern for every investor and portfolio manager. This is the reason our models continue to maintain a very high level of cash in them. The good news is, there is a consensus for the S&P 500 to close out 2023 at our current level of 3900. It just might be a pretty bumpy ride getting there. 


For the month of January, the cash allocation in our equity models remains at 40% due to the model’s more aggressive nature. As many of you already know, our approach has kept our performance ahead of all the major index’s year to date less the Dow which narrowly outperformed. 

Our broad focus is now on Cash, International & Domestic Equities.

We already hold a 40% Cash position. So, there are no major changes we need to make to accommodate the current dominance of Cash.

In Domestic Equities, our focus is on Mid Cap Value, Mid Cap Blend and Small Cap Value with an emphasis on Energy, Consumer Non-Cyclical, Basic Materials, Financials & Industrial sectors.


As a reminder, my current allocation is not a recommendation. Regardless of what happens next, investors like you need to have a simple and yet solid financial plan that reduces RISKS, COSTS and TAXES while securing the necessary income you need to maintain your lifestyle throughout retirement.

If you don’t have a plan OR you’re not comfortable with the plan you have, call me today to get pointed in the right direction.

I’m Chad Kunc and that puts a wrap on the January 2023 Market Action Report. Thanks for joining me. It’s time for me to get back to the markets.

And that action starts, NOW!