Not much has changed in the past week with the holiday taking center stage. This is what we had to say last week in front of the quiet holiday week. All is, of course, not right with the world but I think the Holidays are going to help fend off most of the trouble. While we are itching to de-risk at these levels and sell more equity holdings the Holidays have a way of keeping Wall Street at bay and let the good times roll. The cap on this market appears to be between 4050 and 4150 on the S&P 500. Just so you know, the market closed Friday at 4026.
I keep hearing the same refrain from people. The market always comes back, and sell bonds. If you have read me for some time, you know I tend to be a contrarian. We added bonds 2 weeks ago and are up 8%! We think there is room for more gains into the first half of 2023. If we are headed for a recession with a commiserate decline of inflation and lower interest rates, then bonds would be the place to be. As for the market always coming back, that depends ron monetary policy. We think that inflation is a ten-year battle, so things may be more about being opportunistic and tactical rather than just simply watching stocks bounce back.
This could be an important week with Jerome Powell speaking on Wednesday. This is where we could see the impact of the large December options expiration. In a further move higher in equities, we look to de-risk further and perhaps add duration in bonds. Bonds could be the better performer in the first half of 2023. The post-pandemic shift to headwinds rather than tailwinds are still in place, and we need to be patient and buy cheap. Valuations are still elevated singles and doubles. Not home runs right now.
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