- Everything – except gold and silver – was down in December.
- Tax loss harvesting played an important role in the terrible month.
- Equities, bonds, and real estate all got hammered. Gold was up nicely.
Happy 2023 on this rainy Thursday morning in Asti!
I hope Santa spoiled you and yours rotten for Christmas.
And I hope you drank yourself silly over the New Year.
Pam and I partied with the trusty old buck’s fizz (but with prosecco instead of champagne).
Although the International Bartender’s Association considers them identical, today, a mimosa is usually made with champagne, orange juice, and Cointreau. A buck’s fizz leaves out the Cointreau, which I always forget to buy anyway!
I thought of the substitution effect thanks to prosecco.
A good DOCG (the highest appellation) prosecco from Valdobbiadene can be had for fifteen euros. I was strolling past an enoteca in town and saw a bottle of Taittinger on sale for eighty-four euros.
Those champagne producers must be hurting!
Likewise, investors can now choose between a 30-year bond yielding 3.85% and a stock that may have a 7% dividend yield and a capital loss!
Will that drive investors into bonds? Not if inflation keeps up.
It’s a genuine conundrum.
This is part of the reason for gold’s resurgence. As gold is well over $1,800, a move to over $2,000 is attractive vis-à-vis other assets.
Let’s see how December played out – and what we can forecast for January…
After an awful month (the last four red candles), we finished the year at 3,839.50.
Most Wall Street analysts predicted the SPX would be up in the 5,000 area by year-end.
Clearly, they had an off year.
We’ve been holding steady between the 3,800-3,850 range. A break upward gets us to the 4,100 level. A likelier break downward takes us under 3,600.
My call for 3,215 remains, but we’ll need a few more rate hikes to get there.
December was awful for the tech space, and I suspect that will continue throughout Q1.
The other case is that this may be a double bottom, and we’ll bounce to 11,500.
That better be the case, because there’s not much between here and 7,500 in terms of technical support levels for the Nazzie.
Russell 2000 (Small caps)
Though we had a down month, the Russell still deserves credit for holding up as well as it has.
But it looks like we’ll test that $162.50 bottom again.
If we lose that level, we head to $145. If not, it’s back up to $187.
The US 10-Year Yield
In the last two weeks of the month, we rallied up to 3.88%.
I don’t think we’re done, as Chairman Pow won’t stop hiking just yet.
We’ll get back above 4%, on our way to 5%.
The dollar continued to get hammered throughout December.
But with the ten-year yield heading up, along with the Fed’s overnight rate, we may see a turnaround soon.
Good traders always ask, “What’s the worst thing that could happen?”
A whipsaw in the USD is the answer. I’m weary of it.
Yup, it was a sucker’s rally.
I hate bonds right now and still can’t think of a reason to own them.
If the inflation story was over, Powell would’ve stopped hiking by now.
And bonds hate inflation.
Investment Grade Bonds
Again, another rally that’s run out of steam.
We had a peep above the 200-day MA, but it was a false dawn.
We’ll be back under $100 soon enough.
High Yield Bonds
Junk has turned around as well, just not as much as investment grade and government bonds.
I still think we’ll head down to $70 shortly.
Real estate surrendered November’s gain in only a month.
There’s nothing to get excited about in real estate with rates continuing upward.
Back down to $75, I think.
Base Metals: Copper
We barely moved in copper this month.
The macro numbers look terrible, which skews my outlook to the downside.
I bet we see $3.20 before we see $4.50.
Precious Metals: Gold
Ok, it seems the market has finally cottoned on to the inflation story properly.
This is the first time in a while I’m completely bullish on gold and it feels good.
Next stop: $1,880. Then $2,000.
Precious Metals: Silver
Silver indeed has come to life.
We’re up another $2.50 this month.
But the market is looking a little winded. Don’t be surprised if we pause here for a bit before resuming our uptrend.
Above $25, we can be comfortably bullish.
From three months ago:
BTC’s chart is broken.
I just don’t see how it’s going to recover this cycle.
I’m still thinking $10,000. Or below.
BTC barely moved this month. I’d still stay away.
ETH was down another $50 or so this month.
Steer clear of the entire crypto ecosystem for now.
Trade Asset Class Summary
Equities were up 5.81% in November. They were down 5.82% this month.
Bonds were up 5.05% last month. They took a 2.82% hit this month.
Commodities reversed their slight gains from last month.
And the dollar took another hit of 1.36% this month.
I think the market has finally cottoned on to the idea that Chairman Pow isn’t letting up yet.
As a result, I think Q1 2023 will be dreadful.
Crypto Class Summary
Crypto continues its abysmal performance.
Monero was the prettiest girl in this ugly town, up a miserly 0.78%.
Last month’s big winner, Litecoin, was down 12.42%.
Dogecoin, Elon’s favorite, was crushed, down 32.74%.
The heavyweights, BTC and ETH, didn’t perform too badly, considering.
Silver and gold… silver and gold… indeed for December.
But I expect the trend to continue into January and beyond.
Equities will have a tough time, as will bonds and real estate.
All the best,
Editor, Rude Awakening