The fourth quarter brought some relief to investors as most asset classes experienced strong rallies. On the equity front, major North American indexes were up roughly 5-7% while the MSCI World index rallied 9.4%. The recovery in Q4 was welcome news after a disappointing year during which both the S&P500 and the MSCI World index fell roughly 20%. With rising costs and slowing growth, the technology sector was hit the
hardest, falling 33% last year (NASDAQ) and failing to regain much ground in Q4.
We have spoken at length about inflation, and the effects of central bank policy aimed to curb inflation. Consensus now points to a pause in aggressive central bank behaviour, and investors are eager to recoup losses from 2022. This is a good time to use history as our teacher and assess what may lie ahead. A “Bear Market” is loosely defined as period where a public index falls by 20% or more. A Bull market is the opposite. 2022 represented the 11th time this has happened since the mid 1950’s. Bull markets follow Bear markets, typically last several years longer, and significantly out perform their counterpart in the opposite direction.
In Q1 2023 the conversation will likely shift to a possible recession. Again, we must use history as our teacher. A common misconception amongst investors is that the economy and the stock market function in tandem. In fact, there is typically a lag between the two. Markets are usually a leading indicator of a looming recession, but also tend to lead an economic recovery. With 2022 behind us, and interest rate hikes set to come to an end, it is likely that money will flow back into stock markets in 2023. News headlines over the next few months may focus on rising unemployment and falling real estate prices, meanwhile the next Bull market for equities may already be underway.
We believe there is tremendous opportunity in the marketplace today and we are excited. Our portfolio management team is focused on growth strategy for 2023, looking for opportunities to average down cost on some of the names we own, as well as adding new ones to our roster.
-The Gilman Deters Team
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