ProfitScore Update – January 2023
To the clients and friends of ProfitScore:
January was a good month for both equities and fixed income. After finishing 2022 down more than -18%, the S&P 500 rebounded in January, posting a positive return of 6.3%. Similarly, the U.S. Agg, being down -13.01% for 2022, bounced back in January by finishing at 3.08%. It would seem that the “January Effect” held true this time around. Two key market drivers that weighed the market in 2022, inflation and interest rates, are still front and center, and the market is surely not out of the woods yet. Below is a look at where stocks ended in 2022 vs where they ended through January 2023.
It seems as though we are reaching a critical point in the battle against inflation, and the next couple of months might determine if the Fed can create a soft landing without creating a recession. As we pointed out last month, historically, a bear market has never ended before a recession began. Monetary policy can have a lagging effect on the market, as it often takes time for the full effects of a policy to be felt. This lagging effect can be seen in the stock market’s reaction to changes in interest rates, which can take months or even years to manifest fully. Not to mention that huge balance sheet the Fed is trying to pare down. This lag is due to the fact that it takes time for investors and businesses to adjust their strategies and investments based on new monetary policies. This, in turn, should make the market unpredictable for a while to come. Certainly, volatility will not be absent in the near future.
Important disclosure information: Past performance of a ProfitScore index is not an indication of future results. You cannot invest directly in any ProfitScore index. The performance of any ProfitScore index does not represent actual fund or portfolio performance. A fund or portfolio may differ significantly from the securities included in an index. A decision to invest in any such fund or portfolio should not be made in reliance on any of the statements discussed above. Inclusion of a security within any ProfitScore index is not a recommendation by ProfitScore to buy, sell, or hold such security, nor is it considered to be investment advice. Index performance does not reflect any management fees, transaction costs, or other expenses that would be incurred by a portfolio or fund, or brokerage commissions on transactions in fund shares. Such fees, expenses, and commissions would reduce returns. ProfitScore receives compensation in connection with licensing rights to its indices. All information relating to any ProfitScore index is impersonal and not tailored to the specific financial circumstances of any person, entity, or group of persons.