May 2020 - INVESTMENT ADVISORY NEWSLETTER
December 2022 - INVESTMENT ADVISORY NEWSLETTER
THE ECONOMY Mixed messages galore is the only way to describe the various economic forecasts for the U.S. and world economy. Janet Yellen is forecasting a mild recession next year. Top economist Mohamed El-Erian, not known for dramatics, is stating we should brace for 'violent' shocks that may reshape the global economy forever! El-Erian said on CNBC that a combination of pressures on supply, central bank tightening, and market "fragility" were all likely to weigh on growth. Morgan Stanley expects that the "U.S. may skirt recession in 2023, but Europe will not be so lucky" and is expected to fall into recession next year. A Financial Times headline article states that the Coronavirus pandemic is alive and well in China and that Xi Jinping's `myth of infallibility' is being tested as zero-Covid protests rattle the country. China was expected to recover in 2023, but recent protests spreading across China have economists lowering their hopes for a robust recovery. China's lockdown approach to limiting Covid's impact helps lower the cost of energy but at a cost of lowering world growth. Meanwhile, Dr. Fauci has stated that the Covid pandemic is still with us and, along with respiratory syncytial virus (rs8v) and the flu, are straining hospitals. Small companies can't find workers, but large tech firms are laying off workers? Amazon is planning to lay off 10,000 employees during this year's holiday season. Meta is letting go 11,000 workers, and Elon Musk is running a continuous revolving door over at Twitter. It would probably be quicker to list former growth companies that haven't laid off workers this year. Some of the ones that have include many other big names like Uber, Airbnb, Zillow, Coinbase, Netflix, Spotify, Peloton, Shopify, Stripe and Robinhood.
Minnesota's economic messages are just as confusing. The entire state of Minnesota came in at a 2.1% unemployment rate for October, tying with Utah for the No. 1 spot among states. Minnesota has been on top since June, when it recorded the lowest state unemployment rate in U.S. history of 1.8%. Minnesota is sitting on a $10 billion budget surplus that will surely be put to use now that our elections are over. Mankato has the lowest unemployment of any city in the nation -- and it is one of six cities in the state or on its border that were among the 20 best for jobs this fall. The state's 3 millionplus workforce is still about 90,000 workers smaller than it was before the pandemic. The low employment rates are shaped by strong hiring since the coronavirus pandemic was brought under control and a shrinking of the overall labor pool. Labor experts have pointed to accelerated retirements among the state's aging population and continuing challenges with child or elder care as reasons some workers haven't returned to the labor force. So how to explain the fact that food banks were overflowing this Thanksgiving with more demand for food than we had before the pandemic? Minnesota's nearly 400 food shelves are on pace to record 5.1 million visits in 2022-- the highest number in the state's history. We do have our share of crime, crippling inflation, and homeless to deal with even with a $10 billion surplus. Inflation is expected to remain high for at least the next year. Let's hope Morgan Stanley is right with it's forecasts and we can get more Minnesotans on working moving forward.
MARKET PERFORMANCE ?Lower Inflation and Powell Comments Drive Markets Upward
Overseas and Precious Metals funds were the best performers for the month. Managed Futures, the best performing group in October, and Commodities were the month's worst performers. Most of the market gains were realized on two days: 5% on November 8 with the healthy inflation report and 2.5% at month end with Jerome Powell's upbeat speech at the Brookings Institution.
? S&P 500 ? up 5.1% for November & down 13.3.% YTD
? NASDAQ OTC ? up 5.5 for November & down 26.4% YTD
? Global Equity. ? up 9.7% for November & down 18.8% YTD
? Global Bonds ? up 3.6% for November & down 12.3% YTDB
? Balanced Index ? up 3.8% for November & down 14.5%YTD
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December 2022 - Investment Advisory
12/1/2022
RECOMMENDATIONS ? Markets Rally With Reports of Progress on Inflation & Interest Rates
In our mid-month newsletter, we indicated that there was a "trifecta of news items" to keep stock market bettors guessing how the stock market would behave moving forward. These included: the Federal Reserve's meeting to increase interest rates; the mid-term election to see if there would be a change in congressional leadership for the next two years; and a monthly CPI inflation report. First, the Federal Reserve announced the 4th consecutive `jumbo' interest rate hike of 75 basis points as expected. Supporting Federal Reserve governors did, however, publicly announce their support for lower rate hikes. Fed Vice Chair Lael Brainard stated that "it may `soon' be appropriate to move to slower pace of rate hikes" which supported the markets. The midterm elections ended with a divided Congress, which the markets generally support assuming little will be accomplished in the next two years. Republicans promised to work to contain inflation and crime by investigating Hunter Biden. Democrats are expected to introduce continued fiscal support and regulations to make the tax code more complex and provide full employment for tax attorneys and CPA's (yay). The annual inflation rate for the U.S. was reported to be 7.7% for the 12 months ending in October after rising 8.2% previously, according to U.S. Labor Department. This supported some short-lived support for the markets. There is a long way to go to get to Jerome Powell's desired 2% core inflation rate. The month's negative surprises were geopolitical in nature with reports of Covid unrest in China, including lockdowns and protests that weighed on stocks in China that spilled over to the U.S. markets. Lockdowns serve to hurt the markets in two ways: investments in oil and energy decline and markets fall with renewed supply chains. Hopes that China would loosen Covid restrictions, and therefore see their economy rebound, appear to be short lived, and are contributing to current market volatility.
So, what do we expect for December's markets and next year? We look to the Stock Trader's Almanac for some historical direction. It is important to remember that while we are entering what is considered the most bullish time of the year for investors, there are weak spots and early December is one of them. Cyber Monday and Black Friday were fairly upbeat, the Federal Reserve will not be meeting until January, so all we have to focus on is the next December 13 CPI inflation report, the possibility of a rail strike before year end, and China's handling of Covid. Absent an unpleasant surprise, we should get a year-end Santa Claus Rally which typically comes during the last week of December. Since 1950, the average return for the S&P500 in the following 12 months of a mid-term election is 15%, surprisingly with no down years! Stocks performed better in the six months following a mid-term election 17 out of 19 times. A split government, like what we will have, has historically produced a 13% annual return as reported in USA Today. Our November gains were muted by our managed futures holdings on November 8 which countered the one-day 5% market rally. Our energy related holdings fell as the price of oil declined in the last several weeks. We replaced these holdings for utility, health care, S&P500, and balanced mutual funds in hopes for a year-end Santa Claus rally. Good riddance to 2022.
On the positive side: ? The economy is slowing which may slow the pace of planned increases in interest rates.
On the negative side: ? Geopolitical issues provide a full fledged assault that affects food and energy costs. ? Inflation is global, and concerns remain with supply chains raising costs.
We reacted to the last two week's market turbulence by moving out of Managed Futures, Rising Rate, and Strengthening Dollar funds and into S&P500 HealthCare, Utilities, S&P500, and Balanced funds. We expect to further reduce our hedges based on Jerome Powell's month-end Brookings Institution speech. We are hoping for continued good news on inflation and a seasonal year-end rally.
RELATIVE STRENGTH RANKINGS
Relative strength rankings indicate short-term (1-3 months) historical performance.
No-Load Funds that are highly diversified should constitute the "core" holdings in a portfolio.
? RYEIX
S&P500
? RYZAX
Rydex S&P Value
Industry Balanced and Alternative Funds
? BUFBX
Buffalo Balanced
Industry Specific Sector Funds
? RYUIX
Rydex Utility
? RYHIX
Rydex Healthcare
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December 2022 - Investment Advisory
12/1/2022
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