Climbing the Wall of Worry
February 13th, 2023
Markets were down last week, taking a break from a run that has been strong so far this year. Investors are somewhat baffled by the market’s rise this year, given the economic and corporate earnings backdrop. It seems to many that the market’s trajectory is totally divorced from economic reality. Many wonder, “How can the market be up when inflation is still above target, the Fed is still raising interest rates, and corporate earnings are declining year over year?”
It is true, the fundamental picture is negative. Some call this market action in the face of such weak data as “climbing the wall of worry.” We think that is an apt description of what is happening in the markets presently. The market is seemingly “peering around the corner” to look past present weakness. Implicit in the market strength is that the present economic and earnings weakness will be shallow and short-lived. If that is true, then market strength may be warranted. On the other hand, if there are any downside surprises (stubborn inflation, more severe economic weakness, or more weakness in housing, etc.) then we could be in for additional downward pressure in stock prices with heightened volatility.
As we walk through the remainder of this corporate earnings season, we continue to diligently track our holdings. Earnings of what we hold have been decent as we await the last few reports of the coming couple weeks. Moreover, we will get a CPI reading this week which will provide additional information about the Fed’s inflation fight.
WealthPlan’s position through all this uncertainty is to stay the course. At the margin, we have taken what we believe are the appropriate portfolio measures to weather the storm and to flourish when times get better. If you have questions, please do not hesitate to contact us.
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