Another calendar revolution around the sun is now in the history books. Anno Domini two thousand twenty-three, as I type these pages, is in full “go” mode as the downtime of another Christmas and new year season is wrapped up.
In closing out with this final edition of Market Pulse for 2022, I first circle your attention back to update a data point I presented in the September 2022 issue, where I noted the reading on the Buffett Indicator. As a refresher, famed investor Warren Buffett introduced this ratio, which measures the value investors place on stocks in relation to the size of the economy, to help guide him in recognizing when the price of stocks may be overheating.
In September, the reading chimed in at 177.5%, which was down from the recent record reading of 211.1% set at the end of 2021. That record obliterated the previous record of 159.2% registered just prior to the bursting of the ‘dot-com’ bubble in 2000. On its own, this would undoubtedly point to very worrying economic and investment waters ahead. Alas, investment market returns in 2022 seem to have confirmed the troubling indicator reading at the close of 2021.
Now, as 2022 closed out, the third quarter reading points to a further decline, checking in at 146.7%.1. Perhaps a sigh of relief is warranted. As we saw in the November market numbers, much green on the investment markets’ board seemed to uphold the more bullish sentiments. Besides, Buffett’s indicator looks to have been right a year ago, as it was climbing to a new high, so why wouldn’t it be correct in predicting a better year ahead, as the ratio is dropping?
For a possible counterargument, we can turn to the US yield spread between their 10-year yield and their 3-month yield. At year’s close, this spread turned negative, as the US 10-year was yielding 3.879%, while the 3-month checked in with a yield of 4.405%. Taking this reading on its own points to further rough waters ahead, as lenders are much more worried about lending in the very short term than they are lending over a longer period of time.
On a lighter yearend exercise, I generated a markets heatmap based on the numbers from the Months in Numbers section every month, to test if the year was as negative as it felt for us all. Let’s face it, in looking at the yearly returns and the regular red numbers on the returns’ board, month in and month out, there wasn’t much by way of rainbows and roses. But this is only part of a much broader picture.
For your perusal, you can review the heatmap here, where I have also included a column for the entire year on the far right. This is not, of course, an exhaustive study. Nor should any strict deductions be made solely based on this information.
For your reference, blue represents a bond market, green as stock index and yellow notes a commodity market. Also, I drew in a thick black line to separate the positive markets from the negative in any given month. If you’d like to see how your markets of interest performed in a given month, check out the 2022 Year-In-Review Summary PDF.
It doesn’t take much imagination to note that opportunities abound in any market condition. In a pursuit of both protecting and creating wealth through investments, such opportunities must not be ignored. In the likely event that your current investment guide is avoiding these bigger picture opportunities, now’s the time, with a new year at hand, to connect with us so we can have an informal conversation over coffee about how we may be able to be the better counsel for your investments going forward.
Here's to a 2023 that is happy, healthy and prosperous for you all!
Adrian Harasymiw Investment Advisor Pinnacle Sovereign Investments of ACPI
P.S. To review the December market numbers or download a PDF copy of this commentary, head over to the Monthly Market Pulse page on our website.
1. Advisor Perspectives