Market Commentary: Weakness Right on Cue

Last week, we noted the potential was high for a well-deserved break for stocks after a red-hot start to the year. That seasonal weakness may have begun. The S&P 500 is typically down in February, which joins September as the only other month to average in the red. But as we shared last week (and will share again as we think it is important), trouble usually brews in the later part of the month. In other words, don’t be overly worried should stocks see red in the coming weeks.

  • Stocks still look very strong, but don’t be surprised if late February is weak.
  • Robust starts to the year as of Valentine’s Day tend to resolve higher for the bulls.
  • The economy is getting stronger, surprising many economists.
  • U.S. consumers are fending off a recession, as they are much healthier than most expected.
  • Long-term stock investing remains one of the best ways to create wealth and beat inflation.

We want to be very clear: This isn’t the end of the bull market. We don’t expect any major weakness, but stocks could give back some of their gains after the 11th best start to a year, as of Valentine’s Day.

That brings us to what we have dubbed the Valentine’s Day Indicator. As of the day of love, stocks were up 7.7% for the year, with only 10 years having performed better on this special day. So, what does it mean? As the chart below shows, nine times out of the 10 years that performed better, gains were higher for the remainder of the year, averaging nearly 11%. Only once did the markets fall into negative territory. In other words, a strong start to the year tends to indicate better times ahead.

The Consumer Says No Recession

Retail sales and food services surged 3% in January, making a mockery of expectations for a 1.7% gain. That was the largest monthly increase since March 2021, which came on the back of stimulus checks. So, excluding the 2020-2021 recovery period, which saw large drops and gains, October 2001 was the last month to post larger gains. And even that was a rebound after a depressed September.

Breaking down the report, vehicle sales were the big driver, accounting for more than one-third of the overall gain. But there was broad strength everywhere, including in general merchandise stores, e-commerce, clothing stores, and even furnishings, despite the slowdown in housing activity. Lastly, spending at restaurants and bars rose by a whopping 7.2%, and it wasn’t because of prices, which were up 0.6% last month.

Let’s make this clear. It is nearly impossible to have a recession when consumers are spending like this, as the consumer makes up close to 70% of the economy. Yes, housing is in a recession and manufacturing likely is as well, so by no means are conditions perfect. Some analysts call this a rolling recession, with parts of the economy in a recession and others not. We can’t totally disagree, as those who work in mortgages refinances had a historically bad year. But those who work in other industries, such as restaurants, had an excellent year. We’ve been saying for months that with a consumer this strong, our base case is no recession in 2023. We continue to believe that.

Better Inflation Helps the Consumer

Real retail sales and food services, adjusted for inflation, rose 2.4% in January. That is 9% above the pre-pandemic trend. No matter what seasonality-related adjustments we make, there’s no denying that consumption is strong. The only surprise is how strong goods consumption is running, even as we get further from the pandemic. The expectation was consumption patterns would normalize by now and goods spending would head back toward trend.

The Big Picture

We will leave on this note. Stocks are one of the best ways to create wealth and beat inflation over the long term, meaning multiple decades.

In fact, the S&P 500 has never been lower over a 20-year period or longer. Yes, we’ve seen decades when stocks did poorly, such as the 1930 and 2000s. But if investors have a long enough time horizon, the odds of gains are quite high.

Jack Bogle, founder of Vanguard, once said, “The stock market is a giant distraction to the business of investing.” We agree. The daily news and worries are real and likely will impact how investors view their investments, but taking a long-term view is extremely important. Sometimes we are our own worst enemies when it comes to investment decisions. The desire to sell at the worst possible time has influenced investors throughout history. This is why working with your Carson Advisor is so very important to reaching your long-term goals.

This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.

A diversified portfolio does not assure a profit or protect against loss in a declining market.

Compliance Case # 01664294

Get in Touch

In just minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Contact Us

Stay Connected

Business professional using his tablet to check his financial numbers

401(k) Calculator

Determine how your retirement account compares to what you may need in retirement.

Get Started