Weekly Reflection for January 13, 2023

Market Update in Charts

European stocks outperformed U.S. stocks last year and have continued to do over the first weeks in 2023. European companies tend to be "old world" with a predominance in finance, energy and industrial businesses. The U.S. leans heavily towards innovative and experimental companies in technology and healthcare that struggle in a dragging economy. Also, the strong U.S. dollar had many benefits, including making European stocks cheaper and more attractive for investors, who have been piling money in lately.

From the lows of last October, "value" stocks continue to outpace gains of "growth" stocks. The Russell 1000 Value index has outperformed its growth sibling by 8%. The value index components are 20% financials, 16% health care and 10% industrials. By comparison, the growth index is comprised of43% technology and 14% consumer discretionary.

According to Chartr, this is day 522 of the upward and, now ever so slowly, downward spiral of inflation. Headline CPI (consumer price index), which tracks everything and the kitchen sink, has been falling, in large part due to falling gas prices. Core CPI rose in December; this measure strips out food and energy and is considered the better gauge of inflation.

Overall employment remains very high in most sectors, even given headlines of large layoffs in technology and finance. As the Wall St Journal coined it, this may be a "richcession", where white collar workers lose their jobs instead of the blue collar employees. For example, Meta laid off 11,000 employees last fall; the median wage was $295,785 in 2021. Goldman Sach's is laying off 3,200; an entry level associate last year received over $200,000 in salary and bonus.

Despite easing inflation, strong employment and signs that consumers are feeling more confident, it might be too late to avoid a recession. The Leading Economic Indicators (LEI) Index compiles data to determine the economy's trajectory. The LEI is flashing red amid the Federal Reserve's rate raising cycle. Most every aspect of economic activity is slowing, especially housing. "As a result, we project a US recession is likely to start around the beginning of 2023 and last through mid-year” says Ataman Ozyildirim, Senior Director, Economics, at The Conference Board.

Maybe you are only a little, not super, "stitious" like Michael Scott of The Office, on Friday the 13th. That is okay when it comes to the markets because Barron's says that of 157 years of market trading on a Friday the 13th has typically meant a little gain for the S&P 500.

Everywhere All At Once

As it was in 2020 for most of the world, China is experiencing Covid everywhere all at once. After protests led to China acquiescing and walking back almost all of its restrictive health measures, some 64% of the population has the virus. In just one month. Experts believe that high infection rates will last another 2-3 months. Although official Chinese numbers are no longer published as of this week, the overflowing healthcare facilities can tell the story. And this just when people are determined to be together for Lunar New Year celebrations. For the first time since 2019, families can officially travel again for the most important cultural holiday. Two billion trips are expected to be made during the holiday, which starts on January 21st, Lunar New Year Eve, and lasts for 15 years. Regular parts of Chinese life are already coming back to life. Workers are getting back to routines and tourism, now that the borders are fully open, is returning. As far as reporters can tell, no one is really happy though. People were miserable under three years of near constant lockdowns and now the

mass illness is a new upheaval.

Ultimately, President Xi Jinping must have determined that the cost of isolation was far outweighing the cost of opportunity. China is now coming from behind economically and desperately needs growth in order to dig out of a hole. Destructive housing policies, a growing wealth gap between its rural and urban populations and suspect new friendships (ahem, Russia) have not helped over the last three years. China is looking for a reset, starting with making up with Europe, one of its largest trading partners.The reset may be awkward and messy, like the miserable scrapping of the zero-Covid policy has been. Investors seem happy though; both the SSE

Index (Shanghai) and the HSI Index (Hong Kong) are up since bottoming 10 weeks ago.

Wrapping Up 2022 Taxes

For those incredibly eager and efficient taxpayers, you can starting filing your 2022 tax returns today if you file electronically and earned less than $73,000 last year. For the many millions of other taxpayers, most of whom are still writing 2022 on paperwork instead of 2023, there is plenty of time left to get your taxes in order. Here are some important dates.

Tuesday, January 17th - filing deadline for estimated 4th quarter 2022 taxes; pertains primarily to independent contractors, small business owners and some retirees who have sufficient un-taxed income during the year and owe more than $1,000. Monday, January 23rd - IRS begins accepting individual electronic returns (1040, 1040A, and 1040EZ) from any taxpayer, no matter your income status. Refunds should be issued within three weeks; accepting refunds via direct deposit is the quickest way to get your money. Tuesday, January 31st - deadline for W-2s to be in employees' hands. Businesses must also send out all 1099s by this date. Wednesday, March 15th - if you are a partner or investor in a partnership, this is your deadline to have returns completed; K-1s should be delivered by

this time unless there was a request for an extension. Tuesday, April 18th - Tax Filing Deadline, unless you file for an extension. Also, this is the last day to make (most) 2022 IRA and solo 401(k) contributions. If you need to file an extension, click here. Victims of California's storms, which continue to rage on, already have an extension until May 15th. There are many other important dates throughout the year. Contact your CPA for details. (If you need a referral to a CPA, we can help.)