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Weekly Economic and Stock Market Commentary – January 9, 2023



Note: The US financial markets, and my office, will be closed Monday, January 16th, in commemoration of the Martin Luther King, Jr. holiday.

As for the stock market specifically: The markets did not get the Santa Claus rally, nor did they get one variation of the January effect (that is the year will be positive if the first trading day in January is positive), but the bulls snatched victory from the jaws of defeat with a rally Friday large enough to turn the short week positive. At today’s close we will learn the results of the second version of the January effect (the year tends to be positive if the first five trading days of January are positive). For those who care, I will do a recap of the oddball indicator results of 2022 sometime in February. However, international stocks showed the gains of the week.

The final insult of 2022 from “our friends in Washington” was the $1.7 trillion budget. As part of the bill – now law – the SECURE 2.0 ideas became law.

Here are a few changes to retirement savings tax treatments.

First, the year one is required to start IRA distributions rises to age 73. I see that as a good thing. An offshoot of that is that the penalty for not taking a distribution drops substantially.

People who have SEP-IRAs and SIMPLE IRAs will be able to make Roth contributions. In English, pay tax now instead of at withdrawal time.

Employers may make matching contributions Roth style. Companies may need to amend their plan documents to allow for this matching method.

The tax credit for qualified retirement plan start-up expenses (401k, profit sharing, cash balance, for example) will increase to 100% for up to the first $5000 of expenses. That applies to plans with less than 50 employees. There is an additional credit (I still am trying to understand the details) that allows a tax credit up to $1000 for non-elective contributions. That will decline to zero over seven years.

I will do additional descriptions at another time.

Last week saw some changes on the investment front that warrant comments.
First, domestic stocks fell to fourth place (out of six) for asset class strength. In addition, after years of lagging, international stocks climbed to finally out-pace U.S. securities for the first time in many years. As you probably already know, we have maintained a zero-to-underweight position in international stocks for a very long time.

The bullish percent indicators gained strength last week, but the evidence requires us to remain in WEALTH PRESERVATION mode.

Remember, X’s mean OFFENSE or wealth accumulation, while O’s mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of January 6, 2023 (Courtesy Dorsey, Wright, and Associates).

January 9

On a general note: The Department of Labor released the news that the US economy added 223,000 jobs in December. This put the annual new jobs number as 4.5 million for 2022. The unemployment rate came in at 3.5%, down from 3.6% in November. The average work week dropped to 34.3 hours. That was the lowest level since early 2020. The average hourly wages rose 4.6% compared to December 2021.

If you want more information about a particular stock or mutual fund, please contact me at 973-538-7030 and I will get it to you.