By Michael E. Russell
Happy New Year to all! At the very least, we can say that we are off to a rousing start. The Dow Jones Industrial Average rose a phenomenal 700+ points this past Friday. Not bad; another 7000 points and most of us will be even.
My wife states that I always look at the glass as half empty. Somewhat true, but as I write this article, it is Happy Hour; consequently my glass is half empty!
There are so many things to write about. Where to start? Oh yeah, how about our new Congress Person representing New York’s 3rd congressional district. Brought to you by Saturday Night Live, Mr. George, you can’t make it up, Santos. Let me think about his credentials. Baruch College, NOPE. Worked at Citibank, NOPE. Worked at Goldman Sachs, NOPE. Jewish, NOPE. Jew-ish — that’s correct!
Why do I write about this clown? [I don’t want to offend clowns, sorry]. I write about him because I hope they put him on the Congressional Finance Oversight Committee. A person that claimed he earned $6500 in 2020 was able to donate $175,000 to the Nassau Republican Committee in 2021 and lend his own campaign committee $750,000 in the same year. The man is a genius! How do you do that? I hope to be able to interview him for the next article. Boy oh boy, what we could learn. Alright, enough on this topic. UGH!
Starting with the bad news, it appears that Bed Bath & Beyond will have to close all of its stores — ran out of cash. They were never able to recover after the pandemic.
Sorry to digress, but speaking of clowns, it seems that Party City is also going into bankruptcy. So much for the song, “Send in the Clowns.” I really couldn’t help it!
Tesla is having its share of problems. It is cutting the cost of cars to be sold in China by 30%. Hey, what about us? Elon Musk appears to have become distracted by his purchase of Twitter. He needs to hire a new CEO for Twitter to show investors that he is refocused on Tesla.
Growth stocks lost their luster in 2022. The Russell 1000 Growth Index fell by 30% versus a 10% decline in the Russell Value Index. This was the widest gap in many years. It appears that high interest will be with us for a quite a while since Treasury yields are the highest in 20 years, thus giving us somewhat of “risk free” returns for the short term. This makes growth stocks less attractive for the present due to falling multiples. Even though the Value Index fared better, an investor should still look at only the companies that have strong balance sheets, thus weathering this awful inflation period we are in.
Companies that looked like they would grow forever made some terrible decisions. Prior to the year 2020, Amazon doubled its staff to more than 1.5 million. Alphabet [Google] increased its staff more than double to 180,000!
What do we do? The 60/40 portfolio model looks much better today than it did 12 months ago. Bond yields are much higher and stock prices are much lower. Bear in mind however, despite falling more than 20% in 2022, the S&P 500 is still trading around 17 times earnings, nearing its historical average.
Please be aware that tomorrow, Friday, brings the start of fourth quarter earnings season, with some of America’s giants — Bank of America [BAC], United Health Group [UNH], JPMorgan Chase [JPM], and Delta Airlines [DAL] — reporting results. The consensus is that several S&P 500 companies are to report fourth quarter losses for the first time in quite a while.
Even though there are more electric vehicles on the road, our giant oil companies have seen their stock prices close to double. Check out my favorite, Exxon Mobil [XOM] — $62 in January 2022, closed Dec. 31 at $110. Make sure you fill up this week!
Once again, wishing all a healthy and prosperous 2023.
Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor.