One hour before markets closed, the S&P 500 (SPY) conveniently rallied by over 0.5%. This lets mainstream media report that the widely held index almost lost 20%. A 20% drop is a technical bear market.
At a ~19.5% drop, markets could start with another drop. The earnings will continue to decline, pushing the price-to-earnings ratio higher.
Buy Energy
Occidental (OXY) ended the year rising by 119%. Exxon (XOM) gained 87.4% while Marathon Petroleum (MPC) gained 86.6%. Oil prices need to keep rising to encourage investors to buy energy stocks.
Selling Banks and Technology
JP Morgan (JPM) lost 12.6%. Wells Fargo (WFC) and Morgan Stanley (MS) also lost ground in 2022. Technology stocks did not do well either. For example, gaming firm Electronic Arts (EA) recovered slightly to lose 6.8% in the year.
Outlook
Markets are not prepared for the impact higher interest rates will have on the economy. Last year, real estate prices fell as mortgage rates climbed. This hurt banks dependent on the housing market. In 2023, higher rates will increase borrowing costs for highly indebted consumers.
Inflation showed signs of easing its rise. This is expected. Price hikes will moderate as consumers cut back on spending.
Expect market weakness in the first half of the year. By mid-year, look for big-cap firms posting better results. That will re-ignite markets.
