MarketSmith powers the charts in this video
Most central banks around the world are likely to remain in tightening mode into the first half of 2023. Even the Bank of Japan is joining the chorus, which helped to send interest rates higher last week. When money managers expect a recession, most can hide in Treasuries. This is not working this year. TLT has been absolutely demolished serving the 60/40 portfolios one of their worst years in history. After a brief bounce in November, TLT is down again. When the cost of money is rising, many new and existing projects don’t get funded, and most stocks are worth less. This is the environment that awaits us in the foreseeable future. The question is how much of that has already been discounted. Markets tend to overshoot anyway. This is what creates opportunities.
Even if 2023 is similar to 2022, there will be plenty of opportunities on the long side. Bear markets are often interrupted by violent counter-trend rallies. In 2022, we saw three major bear market rallies varying between 12% and 20% in a few weeks. Plenty of stocks went up 50% to 100% during those rallies. Each of those bounces was led by a different set of stocks. In February/March, energy names stood out. In July/August, biotechs outperformed. In October/November, Chinese and semiconductor stocks made huge upside moves. After every one of those rallies, the indexes made a lower high and the bear market resumed. Every single time, the move lower was led by tech stocks. At some point, the trend of lower highs will end and a new bull market will begin. It always does. In other words, there’s nothing to be afraid of in 2023. There will be plenty of opportunities on both the long and the short side.
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