Weekly Market Commentary January 19, 2023

Housekeeping

1099 Tax Statements
Please watch for your tax forms to arrive in the next few weeks.  Most of our clients have opted to receive tax statements by mail and Schwab has indicated their initial mailing will be early February. They anticipate a second 1099 mailing mid to late February with updated/revised figures. Please don’t file your taxes until you’re confident that your 1099 forms are complete. If you have any doubt as to the completeness of your 1099 please don’t hesitate to contact our office, we’re here to help.

Also, many of our clients have us work directly with their tax advisor or CPA. If you’d like us to work closely with other professionals on your team please put us in touch and we’ll coordinate with them on your behalf.

Fast Facts

Innovation peaked with your grandparents. We know we’re supposed to be touting progress in this section, but a study published this week found that science has actually been getting…less innovative since the 1950s. Reviewing data from 45 million papers and 3.9 million patents from six decades across all major fields of science, researchers found that newer discoveries are less likely to be disruptive and push science and technology in a new direction. No one’s exactly sure why, but one theory is that scientists have already found all the “low-hanging fruit.” Another is that they’re working in bigger teams and pushed to publish more frequently, leading to more incremental advancements.

A startup is sucking carbon from the air. Switzerland-based Climeworks said it has achieved a world first by pulling carbon dioxide out of the air and sticking it underground, where it will ultimately transform into rock. The feat has been confirmed by an independent auditor, meaning that hoovering gas out of the air, a long-held goal for several companies and a potentially important way to fight climate change, is now a real possibility.

Four grade archaeologists: On Christmas morning, nine-year-old Molly Sampson found a five-inch-long tooth belonging to a megalodon, a now-extinct shark that was one of the largest predators in history. This was no chance discovery: Sampson has been collecting shark teeth since before she could walk and has amassed more than 400.

Weekly Focus – Think About It

“We live in a society exquisitely dependent on science and technology, in which hardly anyone knows anything about science and technology.”
—Carl Sagan, astronomer and astrophysicist

The Markets

Bullish or bearish?

After last year’s geopolitical turmoil, economic malaise, and tumultuous stock market decline, many financial professionals – from investors to asset managers – have strong opinions about what will happen in 2023.

Some are bullish. While individual opinions are quite nuanced, in broad terms, bulls tend to think the Federal Reserve (Fed)’s rate hikes will slow soon since headline inflation has been trending lower. Some bulls anticipate an economic recession in the United States and expect the Fed to reverse course and begin lowering rates to pull the country out of recession. Lower rates, in turn, may reinvigorate the economy and corporate earnings, and the stock market will move higher. Some expect the market to move lower before it moves higher.

Barron’s Roundtable member and stock asset manager Todd Ahlsten told Lauren R. Rublin of Barron’s, “The S&P 500…is trading for 17 times forward earnings, down from 21 times, which looks attractive. We see 60/40 odds that inflation is defeated and the economy has a soft landing or mild recession, as opposed to a hard landing. This is the year the Fed pivots. Rates probably peak in March…You’ve got to fasten your seatbelt for the next three to six months, but the S&P 500 could end the year above 4300.”

Some are bearish. Again, individual views are nuanced but, in broad terms, bears tend to think inflation will remain elevated. They see economic strength, particularly in the labor market, as a sign that the Federal Reserve will need to continue to pursue its current course and sustain interest rates at a higher level over a longer period time. Economic growth and corporate earnings may slow, and markets might finish the year flat or lower.

Barron’s Roundtable member and bond asset manager Sonal Desai told Barron’s, “I am not an equity person, but based on my macro[economic] outlook, I expect the S&P 500, and equity markets generally, to be flat this year. The current market volatility is less about the data and more about everyone trying to second-guess what the Fed’s reaction will be. An unemployment rate of 5% isn’t massively recessionary. Interest rates of 5% aren’t massively contractionary. We just happened to have a 15-year period in which interest rates were close to zero. That isn’t normal.”

Whether they were bullish or bearish, many financial professionals (Barron’s Roundtable members included) agree on one thing – there are attractive opportunities for investment, regardless of what 2023 brings.

Last week, the Consumer Price Index showed headline inflation slowing for the sixth consecutive month, although core inflation, which excludes food and energy prices, moved higher. Investors focused on the headline numbers and major U.S. stock indices gained last week. Yields on longer-term U.S. Treasuries finished the week lower.

Heal Thyself. Scientists have been developing smart materials that can heal themselves. These substances have the potential to make everything from bridges to bicycles more durable by repairing damage as it occurs. Last week, we learned that self-healing materials were engineered and used by the ancient Romans.

For years, scientists have marveled at the durability of Roman concrete. It was used to build the Pantheon Dome, harbors, and other structures, and proved to be more robust than modern concrete. The Pantheon was built two thousand years ago, and it remains the world’s largest unreinforced concrete dome.

Scientists recently discovered that Roman concrete included lime clasts, a material that contains calcium oxide. When damage occurred in Roman concrete, cracks would form through the lime clasts. Then, as water traveled through the crack, a calcium-saturated solution would form and crystalize, repairing the crack.

Knowing the secret to the durability of Roman concrete is likely to improve modern concrete and extend the lifespan of many types of infrastructure. Concrete isn’t the only material that has the potential to repair itself, though. Scientists are engineering other smart materials to fight the effects of age, wear-and-tear, and defects in all kinds of products. Typically, these substances contain microcapsules filled with some type of repair material. When damage occurs, the microcapsules rupture, releasing their contents to combine with a catalyst and repair the damage. In some cases, the catalyst is water, light, or another environmental factor. In other cases, the catalyst is engineered into the material, too.

Self-healing materials could have many interesting applications. Imagine airplanes that can repair wing and fuselage cracks. The same might be possible for spaceships, satellites, automobiles, motorcycles, and bikes. Already, there is a coating that mends scratches in automobile paint. All you need is a self-healing clearcoat and some sunshine.

The global market for self-healing materials is expected to grow rapidly.

Best regards,
John Klevens, CFP®

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. Portions of this newsletter have been prepared by Peak Advisor
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* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm or broker/dealer.
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* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
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* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
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* Consult your financial professional before making any investment decision.

Sources:
https://investinganswers.com/articles/99-surprising-financial-facts-most-investors-dont-know
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