February 1, 2023:

January was great, but . . . “Typically, as January goes so does the year.” Such is the rule of thumb and common belief. Stock prices went up while earnings and earnings expectations are going in the opposite direction. P/E ratios are going up as a consequence. So for how long can that last? The underlying problem is that what started as a “transitory” supply-chain bottleneck due to the pandemic has now turned into a long-run beat down of supply-side production due to higher interest rates and borrowing costs. Less plant and equipment and fewer jobs, both supply-side constraints, are the result. True, aggregated demand is the main Fed target, but monetary policy is not a rifle, it is a wide spread blast instead. Already, this is showing up through steadily declining PMI’s. The implication: take profits and build cash now.

Areas that might due well throughout 2023 include municipal bonds, including bond fund CEFs such as: PMF, EIM, EVN, and MAV. Another area is O & G, but for a more limited time. Some CEFs in this area are FEN, FEI, FIF and FPL. Lastly, REITS were hit hard last year and may fair somewhat better this year. Consider: RLTY, PGZ, RQI, JRS, NRO, and AWP for example.

For those wanting individual growth stock picks, consider: PTEM, SSL, CASY, BAESY, HP, XPRO, PEN, CALM, BDROY, and ADM. For dividends and growth: ET, KT, NRG, SB, and ENLC should work. The best ETFs over the last 3 months were: SOCL, SMH, PSI, PNQI and CTEX. As always, good investing!