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We update our annual exercise reviewing how the industry “Dreams” and “Nightmares” of the previous year (2021 in this case) fared in the ensuing year (2022), and conclude with the new year’s industry composition of the Dream and Nightmare portfolios based on 2022 performance.

Read this week's Major Trend.

The rotation into Value continued into 2022, with Momentum joining the party and Growth the only blemish on the factor scorecard. 

We wrap up 2022 with the S&P 500’s only positive performance quarter for the year—ending the longest quarterly losing streak (three quarters) since the Financial Crisis (six quarters). The year also drew some comparisons to the deflation of the Tech Bubble, as S&P 500 Value (-5%) demolished S&P 500 Growth (-29%) by the widest margin since Y2K.

At the end of November 2022, Royal Blue Value saw its largest twelve-month-rolling return gap (43%) over Royal Blue Growth since 2001.

Our Ratio of Ratios ends 2022 at a two-and-a-half-year low. Like 2019, 2020, 2021, and 2022, Small Caps seem primed for outperformance in 2023. Some kind of economic turmoil (perhaps underway) is probably needed to jolt them back into favor.

Our Up/Down ratio ends the Q3-22 earnings season with a pitiful reading of 1.07—very near the previous two quarter’s “final readings.” This vignette hasn’t had much longer stretches at such low levels (outside the Financial Crisis). Perhaps a sign we’re in the latter innings of an EPS downturn?

A signal from the newest addition to our Technical category seems to have gone awry. On November 30th, the percentage of S&P 500 stocks trading above their 50-day moving average topped 90%, thereby issuing the second “breadth-thrust” signal in four months.

While seasonality remains favorable, the risk of a severe recession looms large in the medium term. We are favorable toward high-quality corporate credit and Treasuries.

2022 was a nasty year for the stock market, but a wonderful one for market numerologists. This year is a different story. Two of the three calendar patterns are bullish, including the one in which we put the most stock (pun intended): The Presidential Election Cycle. 

We updated our time-cycle composite for 2023. Overall, while the patterns suggest a year of smooth sailing for most markets, the actual paths forward could be much more volatile.

We suspected November’s “low-risk” VLT Momentum BUY signal on the Dow Jones Industrials might turn out badly, and we were right: The Dow’s decline last month was enough to cause VLT to roll back over, which officially “rescinds” that signal. 

Our grandmother mailed us the accompanying clipping from a Minneapolis newspaper when we entered the investment business in 1990—just as she’d done for our uncle when he became a securities analyst 20 years earlier.

Hopes that this decade might see a repeat of the “Roaring Twenties” took a hit last year. But there’s plenty of time to recover, and bulls will be encouraged to learn that cumulative stock market performance for this decade, thus far, is better than at the same point in the Roaring 1920s.  

Frequently, there’s money to be made in the stock market in the months following the initial curve inversion. After the inversions of August 2006 and June 2019, the S&P 500 rallied another 23% and 19%, respectively, into its final bull market high. If this cycle plays out in textbook fashion, the business-cycle peak would arrive in September.

Energy, Health Care, and Information Technology kick-off 2023 at top of our sector scores. Energy and Health Care have resided in the 1st and 2nd spots, respectively, for the last three months. Info Tech moved up from the 6th spot in October to 3rd this month. Consumer Discretionary, Real Estate, and Utilities are the lowest rated for the second consecutive month.

We update our annual exercise reviewing how the industry “Dreams” and “Nightmares” of the previous year (2021 in this case) fared in the ensuing year (2022), and conclude with the new year’s industry composition of the Dream and Nightmare portfolios based on 2022 performance.

Market veterans know there’s just one thing more probable than a recession after the yield curve inverts: Yield curve denial among a large group of sell-side economists and market strategists! Indeed, the earliest of those dismissals occurred last March—a month before the first of more than a dozen iterations of a yield curve inversion. 

With the stock market horrors of 2022 already well-lamented by others, we tried hard to a come up with a longer-term, cheerier take on the recent state of things. We’ll confess... it was challenge.

Read this week's Major Trend.