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Over the fourth quarter of 2022, the LOM Balanced Fund rose 7.56% as risk markets rebounded
from their October lows on hopes of a soft landing for the global economy. By comparison, the
Balanced Fund Index, comprised of 60% MSCI World Stock Index/40% BofA ICE Government and
Corporate Bond Index rose 6.33%.
The Q4 snap back in the risk markets was a welcome reprieve to end a difficult year where the
Federal Reserve’s almost unprecedented barrage of restrictive monetary policies had been
relentlessly pressuring asset prices. Fed policy initiatives included seven interest rate hikes for a
total increase of 425 basis points, quantitative tightening and an historic shrinking of the money
supply.
A recession appears likely in 2023 as key economic indicators continue to roll over. For example,
the leading economic indicators (LEI’s) in the US had been sliding since March. In fact, with the
exception of February, month-over-month LEI’s have been running negative all year long.
As the economy continues to downshift, equity markets have been exhibiting classic signs of
defensiveness below the surface. For example, the best performing sectors on a year-to-date
basis have been energy, electric utilities, healthcare and consumer staples. Demand in these
sectors tends to be resilient against economic weakness. Consumers need healthcare and food
regardless of economic conditions.
The good news for the markets is that at least some of the recession scenario is likely already
baked into asset prices. Indeed, this recession will be one of the most widely anticipated ones
in modern history and asset prices tend to react more dramatically to unexpected rather than
expected events. While markets have the potential to retest their June and October lows, buyers
may emerge at more distressed levels.
As of year-end the Balanced Fund asset allocation was approximately 70% equities, 26% fixed
income and 4% cash reserves. Strategic positions in the Fund include exposure to healthcare,
semiconductors, high yield and Europe.
The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.
