News From the Front Lines of Investment Decision Making
By Vaughn Woods, CFP, MBA
By mid-2022, bond sellers outstripped bond buyers 62% to 38%. The depth of the bear market in bonds was accelerating. As fears of additional Fed rate hikes and the 10-year yield continued to climb, something happened. The percent of investors anticipating rising yields less those expecting falling yields stayed essentially flat. By July the ratio of bond sellers to bond buyers dipped to 60%/40% and by August had fallen to 57.4%/42.6%. By October this ratio was 52.8%/47.2%. Clearly as we approach the last two months of the year things have changed. Balance between buyers and sellers has been restored.
Over any three-month period, historically, when the number of bond bulls expanded relative to bond bears the 10-year yield declined 72% of the time by an annualized average of -1.11%! That could produce a good 2023 for investors, both bond and stock investors, for it suggests investors will be getting the coupon yield on their investment but capital appreciation. For stock investors it means higher price-to-earnings multiples may be underway. Some analysts call this valuation relief since price-to-earnings ratios have been under pressure much of 2022.
Moreover, while we have witnessed one of the worst markets for all asset classes in history, the good news is it may be less so for 2023. Of course, we can all hope for the best of both worlds. That’s a world in which both valuation expansion and earnings expansion come together. That should happen for some stocks in the later part of 2023 and we’ll be watching for these opportunities as they develop. As for now it’s just calming to know that the worst of both worlds, that is, falling earnings and falling price-to-earnings ratios may be behind us.
So, patience is in order as usual, for patience can be rewarded if the Federal Reserve can rein in inflation. The reemergence of bond bulls suggests the Fed is beginning to succeed in fighting inflation.
Vaughn L. Woods, CFP, MBA
Vaughn Woods Financial Group, Inc.
2226 Avenida De La Playa
La Jolla, CA 92037
Investors should be aware that there are risks inherent in all investments such as fluctuations in investment principal. Past performance is not a guarantee of future results. Asset allocation cannot assure a profit nor protect against loss. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Views expressed in this newsletter are those of Vaughn Woods and Vaughn Woods Financial Group and may not reflect the views of Bolton Global Capital or Bolton Global Asset Management. The information provided is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. VW1/VWA0280.