In February, stocks have started to fall on strong PPI, producer price index reports. Hot economic data is lessening hopes for a less aggressive monetary policy from the Fed. Inflation and jobs data came in stronger than expected, increasing concerns that the Fed Reserve is nowhere near the end of it’s tightening campaign. The January rally was based on the general feeling that the worst was behind us. That has obviously changed headed into February.
In addition, forward earnings-per-share growth, or how investors expect earnings will behave over the coming year, has now dipped negative. In the past, that has meant trouble for stocks. This has only previously happened 4 times in the last 23 years, (2001, 2008, 2015 and 2020). Equities have faced significant price downside associated with the shift from positive to negative earnings growth. Many have called for the S&P500 to likely fall to between 3000-3300 before bottoming out. This would mean for roughly a -20% drop from here, as the S&P500 is currently hovering right around 4000.
Because of this data, we don’t believe we’re out of the woods yet. We believe that the worst news has not yet come out, and that as the Fed continues to raise rates and continues to tighten each month, that more layoffs will happen and that there is a lag effect that still hasn’t been seen yet. With that said, we believe the first half of 2023 will be volatile and that we could see the markets start to turn around in the 2nd half of the year. Many economists are predicting the same — continued downward pressure between now and mid-year, with a turnaround 2nd half of year, only to maybe end up at around the same levels at which we started 2023.
What does this mean for your retirement plan? Focus on what you can control.
If you are a client and have not had a review in a while, reply to this email or call our office at (571) 577-9968 to schedule a time to speak. If you are not a client and you don’t have a comprehensive Phase 2 retirement plan and roadmap built for you, reply to this email or call us at (571) 577-9968 to schedule your complimentary second opinion and Where Do I Stand Plan.
As always, any and all questions are welcome. We are here for you.