Well folks, that’s a wrap for 2022! Today marks the last business day of the year…and what a year it was. We saw major equity indices fall over 20% from all-time-highs achieved the very first week of January on news of the Russia-Ukraine conflict, international oil prices then soared to well over $100/BOE (which decimated earnings) and to tie it all together, real estate markets got crushed – in some cases dropping as much as 30%! Not to mention, the US Government wanted us all to believe the economy was doing well so badly, that they literally changed the definition of the word ‘recession’ so as not to classify us as being within one.
While we’d like to say that it can’t get much worse from here, it definitely can – in fact, while the stock market fell 30% during the first year of the Great Depression, it went on to drop another 47% the year after; the point here, is that while we may not be through the brunt of the storm just yet, there will be opportunities for tactical investors who employ capital defensively as we believe that the days of set it and forget it index investing are far behind us at this point.
Markets in Review
Futures are spelling red in the premarket today with the Dow, S&P and Nasdaq being down 46, 69 and 109 bps respectively at time of writing. While yesterday marked a bit of a recovery from the slump – gold and treasures are continuing to trend higher, marking the flight of investors towards safer assets. Regardless, the S&P is sitting at a crucial support level, with a couple catalysts sitting right around the corner – employment numbers on the 6th and Q4 earnings starting the end of January, so it’s a waiting game dependent on the health of the real economy. Next, further to our point regarding the days of index investing being long gone – now is the time for strategies that have historically underperformed to shine once again. Drawing your attention to the graph below, the S&P 500 Value ETF has far outperformed the S&P 500 Growth ETF on a YTD basis with each respectively returning -4.69% vs -29.46%; zoom out even further and since the drop of March 2020, value investing within the members of the S&P 500 has returned almost 10% more than growth investing, netting investors 68% cumulatively over the last two years.
Japan has announced a new SDF camp on the island of Yonaguni near the shores of Taiwan after repeated Chinese and Russian incursions into the South China Sea throughout the past month. The base will receive an expanded surface to air missile unit in what many see as an effort to deter Chinese aggression in the area. This missile base addition is the latest in a series of remilitarization efforts that have come from the Japanese government in the wake of continued Chinese hostility within nearby waters. This also comes as declassified footage of an interaction between a Chinese J-11 fighter and a USAF RC135 recon aircraft was released. According to the official communications, and accompanying video footage, the Chinese jet came within 20 feet of the US aircraft while stalking it over the South China Sea on December 21. This move comes on the heels of prior aggressions which have taken place throughout the week. US EV Divergence The US State Department has announced the signing of a memorandum of understanding with Zambia and the DRC for an EV supply chain partnership. Multiple arms of government will be involved including; USAID, the Commerce Department, the EXIM Bank along with the Trade and Development Agency. This partnership constitutes US support for the development of critical element infrastructure for copper and cobalt resources located within the two nations. Although both are known for their ‘colourful’ human rights abuse history this agreement will help to ensure the proper materials are in place for projected EV growth across North America and the globe. While some international harmony has been achieved, the situation at home seems to be more divided as the ever crucial senator Joe Manchin appealed for the federal government to remove EV tax credits. This sentiment is in contest to the general opinions of the Democratic Party, however due to the even political split amongst the US senate, his opinion is often worth its weight in metaphorical gold.
Southwest Airlines may need another week to ‘get their act together,’ expert says
Southwest Airlines (LUV) bore the brunt of it, with more than 8,000 flights canceled between Dec. 22 and 26. The airline announced that it would not be able to reschedule flights for impacted customers until after Dec. 31. (Full Story)
Bed Bath & Beyond ‘will be gone’ by this time next year, analyst says
Bed Bath & Beyond (BBBY) may not live to see another holiday season, warned one of its most vocal Wall Street critics. (Full Story)
Poland, Germany’s Plans for Russia Oil Pivot Start to Take Shape
Germany and Poland pledged to stop buying Russian oil by the end of this year. Their plans to do so are starting to take shape. (Full Story)
After $18 Trillion Rout, Global Stocks Face More Hurdles in 2023
More tech tantrums. China’s Covid surge. And above all, no central banks riding to the rescue if things go wrong. Reeling from a record $18 trillion wipeout, global stocks must surmount all these hurdles and more if they are to escape a second straight year in the red. (Full Story)
Chart of the Day: Expected Shipments Plunge…
“When the time for action arrives, stop thinking and go in.”
– Andrew Jackson