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Over the fourth quarter of 2022, the LOM Equity Growth Fund rose 10.64% as markets
rebounded from their October lows on hopes of a soft landing for the global economy. By
comparison, the MSCI World Stock Index rose 9.42% while the technology-heavy Nasdaq
continued its decent, falling 1.03% per cent during the quarter.
Reacting to the Federal Reserve’s almost unprecedented barrage of restrictive monetary
policies during the course of 2022, stock and bond prices mostly slid throughout the year,
notwithstanding the recent rebound in Q4. Fed policy initiatives included seven large interest rate
hikes, quantitative tightening and an historic shrinking of the money supply as defined by M2.
Fed Reserve chairman, Jerome Powell has clearly pivoted from being overly dovish to being
very hawkish. Now operating in damage control mode, he is attempting to rescue his reputation
following one of the worst monetary policy errors in central banking history.
Currently, a recession appears likely in 2023 as key economic indicators continue to head south.
For example, the leading economic indicators (LEI’s) in the US have been printing lower since
March of this year. 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 may already
baked into asset prices. Indeed, the recession expected sometime this year will be one of the
most widely anticipated ones in modern history. 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.
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.
