Welcome to the first Runnymede newsletter of 2023! Everyone is ready to turn the page on last year's bear market and head into the new year with bushy tailed optimism.

One optimistic fact going around social media is that the stock market rarely has consecutive down years so 2023 is going to be a smashingly great year. While it is true that the market hasn't had many consecutive down years, the S&P has posted back-to-back negative years on 4 previous occasions: 1929-1933 (Great Depression), 1939-1941 (World War II), 1973-1974, and 2000-2002. Those were some really rough periods and 3 out of 4 had down years of 3+ years in a row.

While we look for the silver lining, a recession is the big risk for 2023 and we believe that earnings estimates are still too high and will need to be revised lower. This is going to lead to increased volatility especially in the upcoming earnings season. We are hoping that the clouds clear in the 2nd half of the year, but that seems like a career away from today.

Junk outperformed quality bonds
In 2022, one of the strangest anomalies was that on the long end of the fixed income market, high yield aka junk bonds ended up outperforming government bonds. This is truly bizarre but may be because the economy didn't enter recession in 2022.

If the economy continues to slow, junk bonds will do very poorly in the coming months. Whatever the case may be, the cost of capital has risen significantly in the last 12 months and companies that rely on heavy debt loads have seen their cost of doing business rise in tandem.

What's Next For 2023?
This Thursday, we are hosting our quarterly conference call for clients. We will revisit our Financial Hurricane alert (called on April 6, 2022) and share our thoughts on the economy and implications for the stock market in 2023.

We want to educate as many of our readers as possible as this will be another volatile year. If you aren't a client but want to watch, reply to this email and we will send you a replay next week.

Feature image from Unsplash