The bear market is over! But the uncertainty persists.
For months now we’ve been telling clients, “Let’s hope for a recovery soon”. Well, the markets have begun the recovery process! Several weeks ago, the stock market gained back 20%¹ from its market lows in October 2022. As shown below, this was caused by mega cap stocks that benefited from artificial intelligence and its potential future applications. These mega cap stocks are the tech giants like Apple and Microsoft, that are poised to apply this new technology at scale. Since the S&P 500 is weighted by size, these massive companies have dominated the recent upward trend. This has been a welcome development, especially following the tech sector’s poor returns in 2022.

Yes, 10 out of 500 stocks drove the stock market’s performance! But, what about the rest of the market? There are another 490 other stocks in the S&P 500 that have only grown modestly since last October. As always, our crystal balls are unclear. But the recent outperformance in the mega cap sector shows us again that good performance follows bad. Our clients’ portfolios, to varying degrees, have exposure to these mega cap stocks.

What happened in 2022?
We all felt it, 2022 was a bad year for investments. But what really caused this? Well, stocks slumped. But stocks are known for being more volatile assets and having periods of decline. The real story of 2022’s downturn was bonds. How bad was it?

The US bond market dipped by 13%². Compared to government bonds as shown above, this level of underperformance is literally off the charts. This decline was caused by persistent inflation. The Federal Reserve responded by raising interest rates, which caused existing bonds to decline in value. This is an unprecedented decline, there is no record of a worse performing bond market, and it hit nearly everyone. But our clients have been able to capture the upside of such a market movement by investing in bonds at higher interest rates. As we continue to monitor the world of investment options we’ve kept these higher rates in mind, and our clients have benefited from improved interest income from their portfolios.

Sources:
¹ Source: AP news – https://apnews.com/article/bull-stock-market-wall-street-cde5d042da6aa887e7d5ba64b62815ff
² Source: Morningstar Office as of 12/30/2022

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The Hourglass is an OFM Wealth Publication.  This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice.

The views expressed represent the opinions of OFM Wealth as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website.  https://adviserinfo.sec.gov/. Past performance is not a guarantee of future results.