MARKET WATCH
On December 5, 1996, Alan Greenspan, then chairman of the Federal Reserve, gave one of his most memorable speeches, “The Challenge of Central Banking in a Democratic Society.” In that speech, given while accepting the Francis Boyer Award from the American Enterprise Institute, he coined the term “irrational exuberance". The phrase, used by Greenspan in the speech given during the dot-com bubble of the 1990’s, was interpreted as a warning that the stock market might be overvalued.
Flash to 2022 and the wreckage of SPACS, meme stocks, cryptocurrencies, NFT’s and other speculative excesses litter the landscape. Once again, the mentality of getting rich quickly dominated the American psyche and the term “irrational exuberance” defined the phenomenon. While there are times when an investor can hit a home run, so to speak, most of us should be trying to build wealth slowly over time. This is done by a disciplined investment approach into a diversified portfolio, which could involve some of the more speculative items mentioned above. However, as the dust from the fantastic flame out of FTX settles and the regulators, specifically the Securities Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) continue to bicker over jurisdiction, of one thing you can be sure, more government regulation is coming our way.
In mid-December, at the Lawrence Livermore National Laboratory, scientists aimed 192 lasers at a diamond coated target the size of a peppercorn containing hydrogen fusion fuel, heated it to more than 3 million degrees Celsius and fusion occurred. While this experiment has been done before, for the first time, the design allowed the fusion fuel to stay hot enough and dense enough to produce more energy than it took to ignite the fuel. While it is safe to say we still have a long way to go before fusion becomes commercially viable, it is once again a tribute to research and development.
Shortly after the news of the fusion experiment was reported, I was watching the program called Wall Street Week and one of the guests was Larry Summers, former secretary of the treasury under Bill Clinton, former president of Harvard and a respected economist. The conversation eventually turned to our energy policy, specifically referencing the fusion experiment. Summers remarked the harnessing of fusion as a viable option could still be decades away. However, he then stated, “We are going to find as a society that it’s better to figure out how to make clean energy cheaply than it is to make carbon more expensive”.
Statements like this could get Larry cancelled by cancel culture, but in the current landscape, I interpreted the remark as a pragmatic response to the realities we face as a nation, and an understanding we will be using carbon generating fuels for the foreseeable future. In a year where most of the sectors of the economy had negative returns, energy was one of the bright spots.
The S&P 500* was 4,766.18 at the end of 2021 and finished 2022 at 3,839.50 falling 19.44 percent. The index crossed into bear market territory on June 13,2022 when it closed at 3,735.48 and was down 22.12 percent from its all-time high. Then it dropped to 3,577.03 on October 12, 2022 down 24.95 percent for the low point of this bear market, so far.
The NASDAQ* started the year at 15,644.97 and closed at 10,466.48 a decline of 33.10 percent. The NASDAQ’s all time high 16,057.44 was set on November 19, 2021 and by the end of 2022 it was down 34.82 percent from the record. In 2021, the NASDAQ* was the best performing index returning 21.39 percent. What a difference a year can make.
The DJIA* began the year at 36,338.30 and closed at 33,147.25 dropping 8.78 percent for the year. The Dow reached its low point on Sept. 27, 2022 finishing at 29,134.99 falling 20.82 percent and confirming the bear market for all three major indexes. This has been a very challenging year and the possibility of further declines in 2023 are possible before the markets begin to recover. As investors we should be looking for the indexes to achieve higher highs and higher lows going forward for clues to a recovery.
RETIREMENT PLAN UPDATES FOR 2022 & 2023 AND EMPLOYMENT
For the tax year 2022, the total contributions you make to all your traditional IRAs and Roth IRAs can't be more than $6,000 ($7,000 if you're age 50 or older), but for 2023, the contribution increases by $500 to $6,500 ($7,500 if you’re age 50 or older).
The limit on employee elective deferrals to 401k, 403b, 457 & SARSEP plans for 2022 is $20,500 in 2022 and increases to $22,500 for the tax year beginning in 2023. Catch up contributions for those 50 years old and older are $6,500 in 2022 and increase to $7,500 in 2023.
For those with a SIMPLE IRA plan, the 2022 annual employee salary reduction contributions can’t exceed $14,000 but those 50 and older can contribute an additional $3,000 catch up contribution. In 2023 the annual employee salary reduction contribution amount increases to $15,500 with a $3,500 catch up contribution for those 50 and older. For more information on various retirement plans go to: https://www.irs.gov/retirement-plans
Please feel free to contact me any time you have a question or concern regarding your accounts or the economic conditions we face. While the flow of information regarding the economy, politics and general news can be overwhelming, discerning which is noise and which matters can be difficult. Hopefully, I can help with that.
On a parting note, be sure to watch for the employment report released on January 6, 2023 to confirm if the economy is still producing jobs in the 200k range.
INFLATION, THE FED AND THE ECONOMIC SITUATION ENTERING 2023
Overall, the current bout of inflation we have been experiencing is finally trending in the right direction, although most folks would say not fast enough. The PCE price index, the Fed’s preferred measure of inflation, increased 0.1 percent for November from the preceding month. Prices for goods decreased 0.4 percent and prices for services increased 0.4 percent. Food prices increased 0.3 percent and energy prices decreased 1.5 percent. Excluding food and energy, the PCE price index increased 0.2 percent month over month.
From the same month one year ago, the PCE price index for November increased 5.5 percent annually. Prices for goods increased 6.1 percent and prices for services increased 5.2 percent. Food prices increased 11.2 percent and energy prices increased 13.6 percent. Excluding food and energy, the PCE price index increased 4.7 percent annually from one year ago.
The Consumer Price Index rose 0.1 percent in November on a seasonally adjusted basis, after increasing 0.4 percent in October, the U.S. Bureau of Labor Statistics reported on December 13, 2022. Over the last 12 months, the index for all items increased 7.1 percent before seasonal adjustment, compared with 7.7 percent in October. The index for all items less food and energy rose 6.0 percent over the past 12 months, compared to a 6.3 percent reading for the 12 months ending in October. This was the smallest increase in prices since December 2021.
The Producer Price Index for final demand, released on December 9, 2022, increased 0.3 percent in November. Prices for final demand services advanced 0.4 percent, and the index for final demand goods inched up 0.1 percent. The index for final demand rose 7.4 percent for the 12 months ended in November, compared with an 8.3 percent increase for the 12 months ended in October.
On Dec. 14, the Fed raised interest rates by 0.50 basis points, the seventh rate hike this year. The current federal funds rate is 4.25 percent to 4.50 percent. Perhaps since we now have Republicans controlling the House of Representatives, fiscal policy will follow monetary policy and we’ll see further declines in the inflation rate, especially since the numbers reported in 2023 will be compared to the elevated inflation numbers reported for 2022.
Since the advent of the Fed’s rate hike regime, the yield curve has been inverted, which is a recession signal. At the end of 2022, the 3-month treasury yielded 4.34 percent, the 2-year treasury yielded 4.43 percent and the 10-year treasury yielded 3.88 percent. This reflects a belief by the bond market the Fed may cut rates in the future.
In early 2022, through mid-year, the economy registered two consecutive quarters of negative growth, one of the definitions of a recession. In the Gross Domestic Product (GDP) report released on Dec. 22, 2022, it was reported GDP increased at an annual rate of 3.2 percent in the third quarter of 2022. If another round of negative GDP growth is to ensue, we won’t know until the end of April. Meanwhile, purchases made now are on sale.
Company Information
John H. Kaighn offers various products and services under the trade name of Jersey Benefits Advisors.
PO Box 1406
Ocean City, NJ 08270
Phone: (609) 827-0194
Fax: (856) 637-2479
Email: kaighn@jerseybenefits.com
http://jerseybenefits.com
John H. Kaighn is an Investment Advisor Representative & Registered Representative of Royal Alliance Associates, Inc. Securities and Advisory Services are offered through Royal Alliance Associates, Inc. (RAA) Member FINRA & SIPC. RAA is separately owned and other entities and/or marketing names, products or services referenced here are independent of RAA.
10 Exchange Place
Suite 1410
Jersey City, NJ 07302
Royal Alliance Associates, Inc. is not affiliated with Jersey Benefits Advisors or Jersey Benefits Group, Inc.
Insurance Services and Third Party Administration offered through Jersey Benefits Group, Inc., a licensed Insurance Agency in the State of New Jersey.
PO Box 1406
Ocean City, NJ 08226
Phone: (609) 827-0194
Fax: (856) 637-2479
Email: kaighn@jerseybenefits.com
http://jerseybenefits.com
All opinions expressed in this newsletter are independent of Royal Alliance Associates, Inc. and solely those of John H. Kaighn and Jersey Benefits Advisors.
*The S&P 500, the DJIA, the NASDAQ and others referenced are unmanaged indices that are widely used as indicators of Market Trends. Past Performance does not guarantee future results and the performance of these indices does not reflect the fees and charges associated with investing. It is not possible to invest directly in an index.
*Dollar Cost Averaging through a systematic savings plan is an excellent way to build an account without a sizeable initial investment. Saving a portion of our pay each month is very important. Company sponsored pension plans are one method to save and should be used for retirement. Other systematic investment accounts, such as ROTH IRA’s, Traditional IRA’s, Coverdell Accounts, 529 Plans, Brokerage Accounts and Annuities can also be opened, and debited directly from checking or savings accounts. For more information, just call to set up an appointment. Referrals are always welcome.
John H. Kaighn
