It seems every year I say the same old adage that always rings true!
It’s been another historic unprecedented year for the history books and well, this year was certainly no exception!
The markets are fascinating for endless reasons but the uncertainty, ambiguity, and unpredictability of it all truly thrills me!
No day is ever the same on Wall Street to Silicon Valley, even as a long-term boring passive 22 yr old investor.
It was indeed a challenging one with numerous unexpected headwinds and surprisingly bitter sweat tailwinds. Highs and lows, a.k.a equity risk premium is what we sign up for as investors.
Thankfully, most pain is only temporary in life, particularly in the markets since, over time broader indexes do go up and allow us to appreciate the journey.
I was reminded of this memorable saying soon after I began my senior year of college this fall which was a great reminder after a summer on Wall Street.
I hope to remind myself of this more into 2023 especially when the world sometimes feels like breaking apart:
“Don’t wait for life to get easier. It never does and that’s okay. What happens is you handle hard better”
-Kara Lawson, Duke Women’s basketball head coach.
We tend to forget challenges, sacrifices, and heartache do make us stronger in the end since we learn more from our failures and mistakes than from our wins after all. Being a winner and succeeding all the time is awesome and makes us feel on top of the world but it leaves us hanging for something greater.
No matter how many accolades one may hold, one will still feel as empty without a pursuit, challenge, and endeavor to endure. That’s what makes life exciting and is arguably the greatest present you can give yourself this season on top of something even sweeter.
Santa Clause Is Coming To Town!
On top of defining a meaningful challenging pursuit and tackling it in the new year, to end the year off right, a “Santa Claus” rally is something all investors are hoping for each year, as long as you bought the dip beforehand.
The Santa Clause rally, as the name entails, is when equities rally towards the last seven to five trading sessions of the year and sometimes if the year isn’t too shabby, continues typically into the first few days of the new year until year-end predictions, realistic baseline forecasts, and the holiday cheer fades.
Although 2022 is in the history books for one of the worst years for bonds and equities alike, a Santa Clause rally isn’t out of the picture for 2022, especially with the frequent bear market rallies we’ve witnessed throughout this year. Highs and lows were recorded all over the place.
With Wall Street forecasts released with no real consensus found on where the S&P 500 will end in 2023, all we can really count on is the Fed’s actions with their expected 50 bps hike in December after its historic 4x 75 bps hikes in less than 6 months.
With recession fears easing, Black Friday spending cooling, and inflationary signs peaking, this is all great news for investors across the board, retail and institutional alike. If we end up getting a Santa Claus rally as the S&P 500 has rightfully earned 75% of the time in the last seven to five trading days over the past 15 of 20 years according to FactSet, no matter what the economic circumstances may entail, investors may put their worries aside this time around once again and want to end the year on a high note!
Although the rally may not be forceful enough to claw back 2022 losses, it’s still a helpful reminder for investors that there’s still glimmers of hope on the horizon and they aren’t all bruised by this year’s results given bond yields are soaring and private market alternatives are providing a sturdy cushion.
The only cause for concern with a Santa Claus Rally, which makes me especially nervous for young day traders that trade based on emotion and buy high and sell low, is that the rally is a misleading indicator that the following year will get easier or be better than the last.
That clearly isn’t always the case as witnessed at the end of 2021 since the Santa Claus rally is mainly based on pent-up optimism, similar to the excitement investors have after the summer heading into September. It’s more of a temporary thrill of excitement than an actual measurable bullish indicator with no sizable impact or rebound in the long run but certainly nice to experience by the fire!
So whether you were naughty or nice this year, at least you can thank the positive spirits of investors for temporarily boosting risk asset prices and their prospects into the future. Never hurts, as long as you know why it’s happening, and usually for no reason besides the fact it’s the end of the year.
Present at the Pump
Investors and consumers who may not be shareholders, shockingly roughly ~40% of Americans aren’t invested at all, may still get a jolly surprise at the pump before their holiday travels this season.
Remember this past summer when gas prices soared to a national average of almost $6 per gallon? Thanks to the Biden administration tapping into strategic petroleum oil reserves this fall, capping a price limit on Russian oil, more electric vehicles on the road, and fewer supply chain commodity shocks, gas is nearing $3 a gallon once again. Finally an American staple we can rely on once again as lockdowns are gone.
Although commodity prices are known to swing all over the place, at the same time they remind me of housing prices as they take time to respond to the economic environment. This is mainly why real estate is one of my favorite asset classes due to more stability, control and negotiation, offering of utility, physical, tangible attributes, and of course, offers capital appreciation and a form of income through rising rents.
Oil prices and home prices may be polar opposites in terms of their volatility, but they both take time to respond to market-related developments. Gas prices don’t tend to tank overnight as a FAAMG stock may and home prices lag the market by a few months in response to interest rates. It’s been a few bumpy months since gas prices have lowered, similar to housing inventory levels. That’s why having patience is not only key as an investor but when receiving Christmas presents as well!
Currently, with gas prices standing at ~$3.5, this is a reassuring sign for millions of Americans who don’t have much disposable income to spare and can finally save and invest the rest.
Filling up the tank every other week adds up fast, another major headache caused by inflation.
As prices are finally cooling down across the board from the grocery store to the pump, savings levels are also dropping to historically frightening levels of around 3%!!
Whether or not consumers can push it up to a miraculous 50% of their income in case there’s a Fed-induced recession sometime in Q2 2023 is a prediction for another day, but for now, consumers seem to be in the best financial position of their lives and deserve these investable surprises this season!
Happy Holidays! Fill up the tank and rally around!