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Bernicke Letter: December 2022

2022: Wow, What A Year It Has Been For Investors

I write this newsletter as we’re getting our first significant snowfall of the year, making the mood outside serene and tranquil. It gives me a moment to reflect on the year and appreciate everything we’ve been able to achieve with the numerous families we’ve been privileged to work with. Almost into my third year with Bernicke, I’m thankful for the opportunity to meet and work with all the individuals who entrust us with their financial lives. I’m truly fortunate to do the job I do and to see the impacts we make as an organization with everyone we work with.

As we close the books on 2022 and look ahead to 2023, it’s pretty incredible to consider everything we’ve been through economically. Attempting to contextualize it without sounding dramatic is a tall order…

We’ve been through the worst pandemic in modern history, had the world’s governments collectively spend an incredible amount of money during a brief window of time to stave off a deep depression, only to help trigger the worst inflationary environment we’ve seen in a generation, which then prompted the most aggressive monetary policy action taken since the ‘80s.  If Michael Lewis hasn’t started writing a book about this period, I have no doubt one is eventually on the way!  And yet, here we are on the other side of everything I just mentioned, still waiting to see what happens next.

The question remains, “What will the next chapter in the saga look like?” 2023 is setting itself up as a year in which most market pundits are assuming a recession is a foregone conclusion. Though, as we’ve discussed at length in prior newsletters, not all recessions are created equal. We do believe economic growth is likely to slow throughout the year as restrictive fiscal and monetary policy works its way into the system. Indeed, many of the reasons why growth could slow are already known. The question then becomes a matter of timing and depth, and both of these factors are impossible to forecast accurately.

Because we’ve spent the better part of 2022 talking about topics we’re keeping an eye on related to a potential economic slowdown (inflation, rate hikes, consumer spending, and the jobs market, amongst other data), I felt it could be interesting to flip the subject around and list the things we’re not concerned about heading into 2023. These are narratives that have dominated the headlines at one point or another but are expected to have little impact on the fundamentals of our economy in the new year. At the risk of sticking my neck out too far, here are a few topics we’re not focusing on for 2023.

COVID’s Effects On The Economy

Purely from an economic standpoint, COVID is no longer impactful to corporate and government planning throughout the globe, with China being the lone country with restrictive policies in place. However, even in China, the trend is more towards loosening restrictions than maintaining them. As a result, supply chains have largely normalized or are on their way back to normal and corporations are planning as if COVID-related restrictions are a thing of the past. We expect COVID-related headlines to dissipate throughout the year as countries focus more on fighting inflation and maintaining a positive growth trajectory.

 Supply Chain Disruptions

Speaking of supply chains, no, the supply chain is not totally fixed. And yes, the supply chain is likely to continue to be hampered by idiosyncratic events whether it be railroad union negotiations or China’s authoritarianism. However, the trend of where things are going is what we like to focus on and the trend for supply chain normalization is going in the right direction. Automobiles are a great example of this. New car sales recently posted their highest levels since January 2022. That said, inventories are still 33% below the pre-pandemic trend. What this means is there’s further room for growth in this sector if manufacturers can continue delivering vehicles to dealerships, which appears to be the current trend. If this continues into 2023, we may see some supply chain headwinds turn into tailwinds and support modest economic growth.

 Cryptocurrency Fluctuations

While many may have thought cryptocurrencies were something that could be safely ignored (and we as a firm have never recommended or used crypto in client accounts), this year proved crypto could still dominate headlines and move markets. One of the largest crypto trading firms in the world, FTX, blew up in spectacular fashion last month. The postmortem of which has yet to be written. However, what we did learn from this episode was the contagion fears associated with a collapse of the $3 trillion crypto market were overblown. The total value of all crypto is now below $900 billion and down over 67% from its peak. It’s safe to say the bubble has largely burst at this time, and any potential negative impacts to the broader economy appear highly unlikely going forward.

Political Changes

Politics will never not be in the headlines. But insofar as how politics will impact the markets and economy in 2023, it seems unlikely we’ll see a major shock from Washington in the new year. This is primarily due to the split congress after the midterms with Republicans taking back the house from the Democrats. Even despite the small majority, the GOP still has the power to band together and stall any legislative priorities from senate Democrats. The stock market generally likes a split congress due to the lower probability of major legislative changes occurring. This doesn’t preclude battles over the debt ceiling and potential government shutdowns due to political jockeying. However, the instances of government shutdown threats occurring in the past have rarely metastasized into the broader economy for long. Headlines would be dominated, no doubt, but the stock market has historically kept its head down and plowed through the noise.

We hope everyone has a safe, healthy, and happy holidays!

 

2023 Changes in Contribution Limits

  • Traditional 401(k), 403(b) and Safe Harbor plan limits – $22,500, with catch up contributions for those age 50 and over – $7,500
  • Simple 401(k) plan limits – $15,500, with catch up contributions for those age 50 and over -$3,500
  • Simple IRA and Roth IRA plan limits – $6,500, with catch up contributions for those age 50 and over -$1,000
  • HSA self only contribution limit – $3,850, Family – $7,750, with catch up contributions for those age 55 and over $1,000

Reminder: You Can Now Communicate with Us Via Text Messaging

Exciting news! You are now able to connect with Bernicke Wealth Management via text messages. In order to receive future text messages from Bernicke, you will need to offer your consent.

First, you will receive a text from our office (715-832-1173) that says, “This is Ty Bernicke with LPL. To consent to receive texts, reply ‘ACCEPT.”

Once you accept, please save Bernicke Wealth Management Ltd. as a contact in your phone, if you haven’t done so already. You will then be able to receive appointment and event reminders, paperwork, and transaction statuses, and much more directly to your phone! Please use this number for business related items only.

Don’t forget: We are required to receive your consent to send/receive future text messages.

 

 

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss. The economic forecasts set forth in this material may not develop as predicted.​​​​​​​
The information contained in this email message is being transmitted to and is intended for the use of only the individual(s) to whom it is addressed. If the reader of this message is not the intended recipient, you are hereby advised that any dissemination, distribution or copying of this message is strictly prohibited. If you have received this message in error, please delete it immediately.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through Great Valley Advisory Group, a registered investment advisor. Great Valley Advisor Group and Bernicke Wealth Management are separate entities from LPL Financial.

 

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