I am now learning (as many of you have already learned) that raising pre-teens and teenagers can be about as unpredictable as it gets. Kellie and I officially have 2 middle schoolers in our house. While raising kids is a tremendous blessing, you never know what’s coming next.
Speaking of things being unpredictable, major investment firms’ predictions were lousy in terms of where they predicted the S&P 500 to be at the end of 2022:
· Goldman Sachs predicted 5,100.
· Wells Fargo predicted 5,200.
· JP Morgan predicted 5,050.
· The S&P finished 2022 at 3,839.
The “experts” are just like you and me. They have no idea how investments will perform over a short period of time. Where does this leave us?
You and I are long-term, goal-focused, plan-driven investors. We believe that lifetime investment success comes from acting continuously on our plan. Likewise, we believe that substandard returns, and even lifetime investment failure, come from reacting to current events and “expert” predictions.
The unforeseeable economic, market, political, and geopolitical chaos of the three years since the onset of the pandemic demonstrates conclusively that the economy can never be consistently forecasted, nor the market consistently timed. We believe that the most reliable way to capture the full return of equities is to ride out their frequent but historically always temporary declines.
I like what we own. History continues to show that optimism is the only realism. Although this may be hard to remember every time the market gyrates (and financial journalism panics) over the next monthly economic forecast, you and I are not investing in the macroeconomy. Our portfolios largely consist of the ownership of enduringly successful companies. These businesses are now refining their strategies to opportunistically meet the needs and wants of an eight-billion-person world.
The central drama of 2022 (and likely for the coming year) was the Federal Reserve’s belated but very aggressive efforts to bring inflation under control. The U.S. equity market sold off sharply; at its most recent trough in October, the S&P 500 was down 27%. Bond prices also fell hard in response to sharply higher interest rates.
The burning question of the moment seems to be whether and to what extent the Fed, in its efforts to fight inflation, might tip the economy into a recession, if it hasn’t already done so. Over the coming year, the way this plays out may determine the near-term trend of equity prices. My position continues to be that this outcome is simply unknowable, and that we cannot make rational investment policy out of an unknowable.
I continue to believe strongly that whatever it takes to put out the inflationary fire will be well worth it. Inflation is a cancer that affects everyone in our society; if recession proves to be the painful chemotherapy required to destroy that cancer, then so be it. These will continue to be the bedrock convictions as we pursue your most important financial goals together.
As I always say (but can never say enough), thank you for being our clients. It is a genuine privilege to serve you.
“You can’t have fun unless you have fun!” - Parker Nickels
My youngest son Parker is always ready to have a good time and gave his brother Ross this very profound advice on the way to school one morning last semester.
I hope you plan to have some FUN in 2023.
Happy New Year!
Bain Nickels, CFP®,CKA®
Wells: https://seekingalpha.com/news/3771479-wells-fargo-cuts-2022-growth-but-boosts-sp-500-yield-targets
JP: https://www.jpmorgan.com/insights/research/market-outlook-2022
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Householder Group Estate and Retirement Specialist, LLC DBA. L.H. Nickels Wealth Management, a registered investment advisor. Householder Group Estate and Retirement Specialist, LLC and L.H. Nickels Wealth Management are separate entities from LPL Financial.
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